Markets To Remain Volatile As Key Events Are Set To Unravel
Investors have much to look forward to this week, as big events have taken place and even bigger events are slated to take place which can influence the markets and the economy. The most-awaited domestic event that took place this week was the central bank’s monetary policy committee (MPC) meeting. As discussed in previous edition, the MPC has decided to keep the interest rate unchanged at 6.5 per cent (repo rate) and maintaining its stance as ‘calibrated tightening’. RBI in its meeting yesterday revised inflation estimates to 2.7-3.2 per cent by the end of this fiscal from its earlier projection of 3.9 to 4.5 per cent. This inflation projection of RBI indicates that at least in the near term, it would not go for a rate hike. In line with easing liquidity concerns, RBI cut SLR (statutory liquidity ratio, mandatory bond holding ratios) by 25 bps. Presently, SLR stands at 19.50 per cent, and the central bank has said that it would start reducing this ratio by 25 bps every quarter till 18 per cent. This would lead to a greater availability of cash with banks, which in turn would be utilised to lend more.
The RBI has ruled that from the beginning of FY19 all new floating rates of personal or retail loans such as housing and auto loans as also loans to micro and small enterprises extended by banks shall be linked to an external benchmark. Though banks may decide on the spread during the initiation of the loan, this may have some impact on banks as they will have lesser power to reset the pricing, unless the credit profile of the borrower changes. Consequently, margin improvement for banks would be an uphill task, on the other hand, NBFCs might face stiff pricing competition from banks.
On the global front, another important event that investors all over the world anticipate is the OPEC and other major oil producers meeting to be held in Austria to decide on oil production amid falling oil prices. Meanwhile, the US President Donald Trump has urged OPEC members not to cut oil production.
On the sidelines of the G-20 summit, US President Donald Trump and Chinese President Xi Jinping have decided to ease trade war tensions. Both the leaders agreed not to impose any new import tariffs for 90 days and would strengthen their talks as both the nations have settled on the final agreement.
Back at home, at the start of the December month, auto companies reported muted sales numbers for the month of November, which can be attributed to higher ownership costs and liquidity crunch in NBFCs. MHCV sales, which largely depend on financing from NBFCs, were adversely affected, however, strong growth in LCV demand restricted further fall in overall commercial vehicle sales. Also, the demand for passenger vehicles continues to remain sluggish and market leader Maruti recorded marginal decline of 0.7 per cent yoy. However, two-wheeler makers managed to record positive growth amid weak consumer sentiments. Bajaj looks set to regain its market share as it registered 45 per cent growth in its domestic sales, while Hero Moto’s sales rose marginally by 0.87 per cent.
We believe that in the near future, markets are likely to remain volatile on the backdrop of state elections exit polls and results here in India. Hence, we continue to urge our investors to adopt stock-specific approach amid volatile conditions. Remember the Chinese proverb: “Unless there is opposing wind, a kite cannot rise”.
(Subscribers can send their feedback and queries on technicals portfolio guide to fnieditor@dsij.in)