Nifty to end the year on a rally!

RBI chooses not to raise rates ….

In a mid-quarter monetary policy meet yesterday the RBI governor kept the key rates unchanged. In the run-up to this meeting we had seen a spate of bad data be it IIP, Inflation, etc as a result the markets had factored in a 25 bps hike in interest rates.  This decision thus came as a complete surprise. The repo rate is unchanged at 7.75 percent and CRR at 4 percent. RBI said  it was willing to wait for more inflation data before taking an action. They do not want this measure to be viewed as a soft stance of inflation but more a wait and watch approach.  They observed that the WPI inflation (excluding food, oil and metals) was at 3.5%, which is why they have decided to wait as there are indications that vegetable prices could be coming down sharply.  Also they would wait to evaluate the effect of some of the measure taken earlier before taking a call on raising rates.  Markets cheered this and we saw a 1% rally on both the headline indexes.  Which left us nicely poised for the US FOMC meeting results later in the day.
Fed to start taper from Jan ’14

The Federal Reserve said it was trimming its USD 85 billion monthly asset-purchasing program by USD10 billion effective next month.  They kept key benchmark lending target, the fed funds rate, unchanged at 0.0-0.25%.  The improved labour market condition and overall better economic indicators prompted this action. The unemployment rate had declined but was still for them a cause for concern. The Federal Reserve said it would buy USD75 billion in mortgage debt and Treasury securities a month to bolster the economy, though it added it could adjust that amount should recovery gain steam or deteriorate.

These two events which added uncertainty to our markets this last week are now behind us.  Asian markets are trading firm, the general take away seems to be that the will-they-won’t-they taper question is now answered and the quantum of the taper is not large enough to have a meaningful impact.  Also the indications are that the taper will be very calibrated and US interest rates would continue to stay low.

Nifty to end the year on a rally!

The December series has about a week to go, it is short expiry in any case and we could see some volatility on account of that.  Banking stocks and the banking index could see some action, there are quite a few shorts there and this positive development could lead to some recovery in that pocket.  Overall the mood in the market should be upbeat.  For once factors seem to be aligning in favour of a market up move.

While I do not think that we can ignore defensive sectors and I continue to like IT stocks, high beta play will make a come back. Interest rate sensitives, metals, capital goods all will find favour with investors as Nifty seems poised to make a bid for a new high!






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