See mkts rally on Monday post RBI move: Experts

The Reserve Bank has cut the repo, CRR, and SLR. It cut the repo rate by 50 basis points to 7.5% with effect November 3. It has also cut CRR by 100 bps in two stages to 5.5%, and cut SLR to 24% by 100 bps from November 8 onwards.

So, how will this move impact capital markets?

Portfolio Manager PN Vijay expects markets to rally on Monday. "Central banks globally have been cutting rates and inflation has been on the downward trend in India. Everyone was looking up to the RBI to shift its focus from inflation control to getting the growth engine going. Now, the markets will be looking towards the Sebi to force the FIIs to square their short positions. Then we will really have a real rally."

Dipan Mehta, Member, BSE and NSE, feels this RBI move will improve market sentiment. "We had the RBI policy [on October 24] in which it had maintained status quo and any kind of a policy statement from the RBI had been ruled out by the market completely. Now that we have this fantastic dose of liquidity along with interest rates [expected to] decline, then we also have the inflation figures in place, so what it will do is: it will create a feel-good factor and go a long way in improving sentiment in the market."

"A lot of institutional and retail investors, who were sitting on the sidelines, waiting for a bottom and for an opportunity to get into the market, will see the signals. They will react positively. Like Vijay said, the short positions which are there — even if Sebi doesn’t force the P-note issuers to reverse those short positions — the fact that the numbers have been disclosed and the fact that they may not be allowed to renew the stocks lent will also add prowess to this market."

Will the expected rally be spearheaded by the banking sector?

Meha feels the rally will be spearheaded by the banking sector. "On Friday itself, we saw private-sector banks and some PSU banks do exceedingly well and this particular move will give a further fillip to the banking sector. Government security prices will go down to that extent. Profitability of these banks will be helped by lesser provisions. I think that beleaguered realty and the auto sector will also benefit. There is hope that lending rates for the housing sector may come down and there could be some benefits on auto loans too. So the interest-sensitive sectors will be in focus first thing Monday morning."

Source: Moneycontrol