RBI Governor Raghuram Rajan delivered ahead of expectations and gave new life to the tired stock markets. His 50 basis point cut in Repo rates to a level of 6.75% which is the lowest level in four and half years was one of the options given to pollsters but not a probable one. The other two were 25 points cut and no cut and the most voted was for a 25 basis points cut. This cut cumulatively makes the cut in the current calendar year at 125 basis points and banks had been shy of cutting corresponding rates. This time the story is different and cuts of upto 40 basis points have been announced.
Job data for the month of September was lower with a mere 1,42,000 new jobs created. Further the figure for August was revised downwards. This virtually puts paid to any rate increases which were contemplated by the Fed in the two remaining meetings for the calendar year. Come to think of it if the rate was raised in the September meeting and then the data now and following two months was also bad, would the Fed reverse its rate increase? It sure would have been a very difficult and dicey situation. Very clearly while the Fed almost did it but did not do it our RR did it with guns blazing. He has taken due cognizance of the situation and decided to do it and do it fully. Hats off to the man for taking a well thought of decision and at the same time prodding banks to pass on the benefit to the borrowers.
Markets closed with gains of 1.38% on the SENSEX and 1.05% on NIFTY. The mood has certainly turned positive and expectations are rising after the RBI move. Clamour of industry for a rate cut is now over and they will have to deliver from here on. Similarly the government led by the Finance Minister and his deputy will be more than satisfied with what RBI has done. RBI has cautioned for a temporary increase in inflation because of the monsoon shortfall but has targeted a 5% inflation for next year.
The inauspicious period when the living pay obeisance to the departed is currently on and there is a huge pipeline of issues ready to tap the markets as soon as the same gets over. The success of these issues will be determined by whether investors make money or not. As long as there is something left on the table and promoters in tandem with merchant bankers do not become too greedy, the issues will keep coming. The moment they become exuberant in pricing, a repeat of what happened in August will happen. Readers will remember that issues had to be bailed out using all sorts of tricks of the trade.
Key drivers for the wwwk would be global markets and in India how the results season fares. Fundamentally good scrips should be invested in with a 3-6 month horizon.
