ALL EYES ONLY ON RBI MEET

By Research Desk
about 9 years ago

 

By Ruma Dubey

The markets are waiting…..

It looks like everything is being held in a state of status quo – the listless market most certainly indicates that.

All eyes are only on tomorrow 11 AM. What will Raghuram Rajan do? Will he reduce rates or will he keep status quo? If he reduces rate by 25bps, will the markets react positively or would it once again move downwards, saying that it has already been discounted for? And if he remains status quo, which seems more likely, then will the markets go downwards? So what we see is that the markets can rise, if and only if the rate cut is to the tune of 50 bps and that seems highly improbable. Not at this juncture.

The question which actually should plague us is – why hinge everything on RBI cutting rates? A 25 bps rate cut is what will change the course of the entire economy? Doesn’t that seem too far fetched? The governor, in 2015 has already cut 75 bps and only two banks have passed on some benefit to the consumer, that too of 30 bps. This 75 bps rate cut has neither pumped up demand for home loans nor has it buoyed sentiments. So how are we thinking that if and that’s a BIG if, tomorrow 25 bps rate is cut, how will it help boost demand and perk up growth?

Why this onus of growth on RBI when that is not its mandate at all? Growth spurt has to come from the Govt and that does not seem to be happening. Our foreign policy has never been this good – no doubts about that but we need to see a change in ground reality. If RBI makes its decisions purely on inflation that logic says that it might want to wait some more. Monsoon has been deficient. Vegetables and food grains continue to cost high and we now need to see how much the kharif harvest will ultimately yield – everything hinges on that.

Frankly, the market does not have a single trigger to look forward to. There is really no big news to look forward to. Company specific news too seems to have a temporary impact and then the overall mood of the market takes over. Thus in the same vein, IF at all the rate cut comes, it would be purely a temporary boost to the sentiments; later from day after, it would be back to listless and looking for new triggers.

What is indeed required is a long term fix for the sentiments. Just as we human beings are constantly in pursuit of happiness, the market also is perennially on the lookout for positive triggers. And this wand of granting a long term trigger lay with the Govt and no one else. How does one fix that?  The recent trouble with Amtek and now with GMR, are all indications that things continue to remains sticky at the ground level. If is not about paucity of funds or interest rates; it is all about poor sentiments.

We in India have moved on beyond great speeches and one-liners; what we really need to see some action. Faith is wearing thin and Rajan most certainly cannot restore that….

 

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