RBI Rate Cut Marks Nifty's 11K Milestone
After moving in a broad range over the past monthand- half, the set-up for the market on the interim budget day was perfect as the market went with its head held high. This was on the back of news of the dramatic turn in the Federal Reserve's stance as Powell turned into a dove from a hawk and as the news on the domestic front added to the enthusiasm further. The Ministry of Finance stated that the revenue collection from Goods and Services Tax (GST) in the month of January 2019 surpassed Rs 1 lakh crore-mark. Also, the GDP growth for FY17 and FY18 was revised, which provided the interim finance minister Piyush Goyal a firm pitch to bat on as he walked in to present his maiden budget. As Goyal started rolling out budget announcements in the Parliament, the bulls went firing on all cylinders as the budget turned out to be a fine balancing act with the government giving a huge push on consumption, the real estate sector getting a much-needed relief, pampered the Aam Aadmi by doling out tax exemptions for the middle and lower income taxpayers and the government reiterating its commitment to double farm incomes by 2022. The cherry on the cake was the government managed to pull off all of this without any compromise on fiscal consolidation. The fiscal deficit target slippage by 10 basis points to 3.4 per cent of GDP sounds optimistic, but a lot would depend on the government’s disinvestment target of Rs 90,000 crore and its revenue management through GST collections, which many may argue was a tad overoptimistic given the hurdles in GST implementation as also lowering of GST rates on many goods. Meanwhile, the first month of the CY2019 took off in the slow lane for the auto companies as auto sales numbers continued the negative trend from the last few months.
The interim budget provided a perfect launch pad for the markets and now the market participants had set their eyes on the RBI policy review. For the first time since August 2017, the RBI had cut repo rate by 25 basis points to 6.25 per cent and provided the much-needed breather for the markets and especially to the interest rate-sensitive sectors like housing and auto. To an extent, it will also help settle the dust thrown up by the recent liquidity crunch post the ILFS fiasco.
The noise may be high as the benchmark indices have hit four-month highs, but the reality is that the rally is not broad-based. In the past few weeks, the divergence in the performance of benchmark indices and the broader market indices has been a matter of serious attention. Now, this brings us to the question: Will the broader indices catch up with the benchmark indices? “Don’t be surprised at Fortune’s turns and twists. That wheel has spun a thousand yarns before”- Hafiz. We believe the broader markets may soon catch up with the benchmark indices, but it is important for investors to focus on fundamentally sound companies with strong financials and healthy prospects. On the domestic front, market participants would keep an eye on the remaining quarterly earnings and macro data.
For the US, the sanctions appear to be finally finding favour in term of hard numbers, as the US trade deficit narrowed by 11.5 per cent YoY in November to $49.3 billion. Meanwhile, the ambiguity about trade talks between the US and China continued as President Donald Trump’s State of the Union address last night lacked details about progress on the talks. However, the Treasury Secretary Steven Mnuchin said trade talks with China have been ‘very productive’ ahead of the March 2 tariff deadline that could potentially ramp up tensions. Mnuchin is heading to China next week to continue negotiations and is optimistic about getting a deal in place before the deadline.
