All Eyes On Policy Decision

Equity markets in the past week danced to the tune of macroeconomic data. A lot of macroeconomic data that was announced on the domestic as well as global front led to the fluidity of the markets. While on the domestic front it was the inflation numbers that were announced, on the global front IMF and World Bank announced the expected GDP growth figures for various countries.

However despite so much of news flow, there is only one factor that is clearly dominating the psyche of investors today. It is the clarity on policy of the central bankers whether the RBI or the US Fed which is ruling the highest on the market’s mind. While the RBI is slated to meet for its third quarter policy review on the 28th of January, the Fed will announce its policy on the 29th of January 2014.

As far as domestic policy action is considered, it was the inflation data and IIP numbers that would affect the policy stance taken by the RBI. And we are of the opinion that, looking at the Infl ation and IIP numbers, the RBI maintaining a status quo on interest rates is almost a certainty. To put numbers in perspective, WPI for the month of December 2013 came in at 6.16 per cent (which is the lowest in the last five months) and the CPI after a long time has seen a single digit level. Add to this the contraction in IIP (2.10 per cent in November 2013) and the possibility of the RBI maintaining a status quo on rates becomes almost a sure given.

On the global canvas, while the World Bank stated that “The world economy is projected to strengthen this year, with growth picking up in developing countries and high-income economies appearing to be finally turning the corner five years after the global financial crisis’. Even the IMF expects global growth to pick up this year, though deflation is a ‘rising risk’ as long as economic growth stays below what policy-makers believe is optimal.” Both these statements are very optimistic and paint a very positive picture for the equity markets going forward. Apart from this most of the Asian markets gained, led by Chinese equity markets after China’s central bank poured funds into money markets, easing immediate credit strains.

On the stock specific front, it was the December quarter results that played on the investor’s mind. With Strong performance Infosys, HCL Technologies and Aurobindo Pharma were amongst the top gainers. But the counters like Exide Industries witnessed a decline after poor set of financial numbers for the December quarter. Ranbaxy also was in negative as one of its facilities again came under the scrutiny of US FAD. 

The results season has emerged as per the street expectations. Except few IT companies no other company has managed to provide any positive surprise. As for the markets, we expect the RBI to maintain a status quo at its policy meet. Even we do not expect any surprise from the Bernanke at his last policy meet. The FIIs have been consistent buyers in the past fortnight this clearly indicates towards the positive mood of the investors. Hence, unless and until a really bad event occurs, we expect the markets to remain in positive zone.