A Less Hawkish Tone from RBI may Unleash Some Animal Spirits on Street

  • 5th Jun, 2017
It will be up to the monetary policy committee of the Reserve Bank of India to decide whether the stock market reaches new milestones or not. A signal by the central bank that it expects inflation to soften could cheer investors, looking for the next set of triggers to drive the market higher. Money managers and analysts believe that an environment of low inflation and weak gross domestic product numbers, published last week, may nudge the Reserve Bank of India towards signal a softer stance on its rates. But, they do not expect the policy stance to be reversed from the existing ‘neutral’. “In the back drop of the GDP numbers, oil prices, a strong rupee, US data, final GST rates being not inflationary and not to mention a timely monsoon, the RBI is likely to maintain a less hawkish tone this time,” said Navneet Munot, chief investment officer at SBI Mutual Fund.
 “The market is likely to sustain the momentum going forward given these positive news flows.”It is “unlikely that the RBI will change its stance so soon.” Some fund managers said the RBI is unlikely to be in a hurry to change its stance and will wait for the monsoon’s progress. “There aren’t any expectations as such from the RBI policy decision. It is a little early for a change in stance; the central bank may want to look out for the progress of the monsoon first,” said Sunil Singhania, chief investment officer-equity at Reliance Mutual Fund.
 Sampath Reddy, chief investment officer, Bajaj Allianz Life Insurance, agreed saying a rate cut would be surprising. “We don’t expect much from the bank on the rate side, but we do think the bank will move towards a dovish outlook as earnings are under control and the GST is underway,” he said. Some fund managers believe midcap stocks as a whole may not underperform large caps. “It would be unwise to say that midcaps will fall more or that large caps will be stronger from here. Since some of the mid-cap stocks have run up ahead of time and their results have not lived up to expectations, they are being rightly punished. The difference in returns between large and midcaps is still quite large,” said Dhiraj Sachdev, VP at HSBC Global Asset Management. Analysts say there is some value still to be found in tech and pharma stocks. A fall in oil prices in recent days had led to a rally in stocks in allied sectors but any volatility in prices would push earnings recoveries further ahead, said Pankaj Pandey, head of research at ICICI Securities 

Source: The Economic Times

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