Cut that cheers

Oct 05, 2015, 08:23 IST | Arun Kejriwal

RBI raises hopes for a revival of the markets that have taken a beating for some time now

The important news of week gone by was the rate cut by RBI Governor Raguhram Rajan on Tuesday, which was above expectations. The 50 basis points cut saw the revival of the markets which have been at the receiving end for quite some time now.

Bihar Chief Minister Nitish Kumar at an election rally in Bariarpuri. Much is at stake in these state elections. Pic/PTI
Bihar Chief Minister Nitish Kumar at an election rally in Bariarpuri. Much is at stake in these state elections. Pic/PTI

The sensex gained 357.42 points or 1.38 per cent to close at 26,220.95 points while Nifty gained 82.40 points or 1.38 per cent to close at 7,950.90 points. BSE100, BSE200 and BSE500 gained around the same at 1.12 per cent, 1.19 per cent and 1.18 per cent whilst the BSEMIDCAP was up 2.08 per cent and BSESMALLCAP 0.92 per cent.

The volatility seen in these two indices is substantially higher than the rest of the market and understandably so. Top gainers amongst the sectoral indices were BSECONDUR up 3.87 per cent followed by BSEREALTY 3.23 per cent and BSEFMCG 2.60 per cent.

Losers were led by BSEMETAL 0.90 per cent and followed by BSEBANKEX 0.45 per cent and BSEAUTO 0.02 per cent. In individual stocks, gainers were led by Dr Reddy up 6.50 percent, Lupin 5.93 per cent and Bharti Airtel 5.20 per cent. In other stocks, LIC Housing gained a hefty 8.71 per cent.

Losers were led by Vedanta down 12.42 per cent followed by HCL Tech 9.97 per cent. HCL Tech has given profit guidance and one is not sure when a company does so after the entire period for which results are to be reported whether it is guidance or something else.

The RBI governor reduced repo rates by a whopping 50 basis points to 6.75 per cent. This makes the cumulative cuts in the current calendar year to 125 basis points. He has been urging banks to pass on the rate cuts to the customers and unlike the past this time around cuts have been passed by almost all the banks following suit.

Repo rates
The repo rate at 6.75 per cent is the lowest in the last four and a half years and the governor feels that with inflation under check barring a brief period where it would rise over the next 4-6 months on account of the weak monsoon, this was the right time. The action taken by RBI would spur industry into action hopefully. If it does so fine otherwise the clamour for a rate cut would disappear.

Global markets continue to be in turmoil and the growth story is somewhere slipping. What started from China seems to be grappling the world and one would have to see what happens when Chinese markets reopen and the selling ban introduced temporarily are withdrawn.

There has been no flight of capital anywhere so far but with returns becoming increasingly difficult, it could happen. In India, in another 7-10 days’ time the second quarter results for July-September period would begin and while not much change is expected, the market would be keen to see some green shoots in the performance.

The depreciating rupee should help the exporters, particularly the IT industry and these stocks have begun to rise in the last week. The same would not hold good for the entire industry as HCL Tech has issued a profit warning and was down sharply. With crude weak and global growth under pressure it appears that crude has a long way to go before it recovers in any significant manner.

Bihar polls
Bihar elections to be held in five phases would be beginning shortly and would add heat to the political climate of the state, as well as the nation. It would be a closely fought election with the winner takes it all as the stakes are high for all political parties. For NDA, a win could be a solution to the logjam in Parliament while a loss would make logjam a way of life.

Markets would be choppy and volatile due to various factors. Drivers would be global cues and results from the season which begins shortly. With fundamentals in place any dips should be an opportunity to add stocks which have weathered the storm. Invest wisely.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website

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