A RISING CURVE AHEAD

The Reserve Bank of India kept the key rates statuesque in its bimonthly review meeting on February 3, 2015 after its surprise rate cut of 25 basis points to 7.75 per cent on last January 15. The RBI governor, Raghuram Rajan, preferred to watch out for good triggers such as the Union Budget to take a decision on further easing. However, RBI has infused little more liquidity by reducing statutory liquidity ratio by 50 basis points so that the Indian banks can lend more. However, the domestic markets seems to be expecting more easing in the lending rates which was clearly shown in more than 1000 points correction in Sensex from its highest level in last 4 trading sessions. However, this is just a consolidation phase where retail investor should use this to accumulate good quality stocks.

On the European market front, on January 22 the ECB pulled the trigger and has decided to spend Euro 60 billion per month through September 2016. Interestingly, during the past couple weeks, the European markets is getting good support from the announcement of quantitative easing and continued its upward movements with good appreciation of 6.2 and 5.2 per cent in DAX and CAC 40 respectively. Further, the newly elected government in Greece has too intended to boost wages and pensions in Greece and ramp up public spending to provide benefits to the poor. Hence we can expect at least near term stability in Euro zone.

The Chinese economy has too started showing slowdown in the economy. Recently the Chinese service sector too grew at slowest pace in January 2015 in last six months as per the HBSC Service Purchasing Managers’ Index (PMI). Previously, the Chinese economy showed growth of 7.4 per cent in 2014, a weakest growth in 24 years. However, the slowing down economy raised expectation of more stimulus steps by the Chinese policy makers.

On crude oil front too, there was some optimism from the announcement of BP to cut down its 2015 capex. Further, the Royal Dutch Shell refinery workers extended their strike in third day over wage hike demand. The crude oil recovered to USD 53 per barrel presently from its low of almost USD 44 per barrel on January 28, 2015. After the recent US president’s visit, the government has speed up its reform process. Adhering to its commitment of sticking to its fiscal deficit target, the government has started the disinvestment process with stake sale in Coal India.

Domestically, there has been drastic improvement on the macro economic conditions over last few months. A better situation on commitment to adhere fiscal deficit targets and lowering inflationary pressure coupled with start of big rate cut are likely to take India to its next level of growth and development. Further, the increased global liquidity due to stimulus programs from Euro zone, China and Japan will naturally create a good amount of foreign money inflow into high yielding emerging markets particularly in Indian economy.

After a good run-up in India markets, the valuations are little stretched compared to the rest of Asia. However, considering the government’s commitment towards economy growth and favouring global events are expected to fetch further upside in Indian market in the days ahead.