Reforms, rate cut and rupee movement to propel markets

By Rohit Vaid

Mumbai, Hopes of further economic reforms, rate cuts, range-bound commodity prices and stabilisation of the yuan and rupee are expected to propel the Indian equity markets during the upcoming week, experts said.



“Investors have appreciated the government’s effort in trying to pass key economic legislation in the (just-concluded) monsoon session (of parliament). Markets believe that the government will be able to meet the GST (Goods and Services Tax) roll-out deadline,” Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.
“There are solid hopes that the government will either call a special or joint session of parliament to get the GST bill passed. If this happens then it will send in a very positive signal to the world that India is serious about reforms and ease of doing business,” he added.

Lately, investors have been reluctant to place bets given the possibility that the whole reforms process might be stalled due to the government’s inability to conduct business in parliament.

Nevertheless, the key macro-economic data points released last week is expected to keep the investors solely focused on the apex bank’s moves on a rate cut.

Investors are hopeful of a rate-cut based on healthy macro-economic data points including the Consumer Price Index (CPI), the Index of Industrial Production (IIP) and the Wholesale Price Index (WPI).

The macro-economic data points showed a fall in India’s annual retail inflation rate to 3.78 percent in July, the annual wholesale inflation to (-) 4.05 percent, there was a rise in the factory output to 3.8 percent in June.

The WPI, coupled with the CPI, have pointed out at a gradual reining in of prices. The RBI has set a target for CPI inflation at 6 percent by January 2016.

“The double of joy of growth and inflation numbers have stoked optimism for an inter-policy rate cut, which could support banks’ run in the week ahead,” Anand James, co-head, technical research desk, Geojit BNP Paribas.

Banks will be at the centre of the markets attention, especially in the light of government’s announcements on recapitalisation of public sector banks and setting-up of a Banks Board Bureau.

“The announcements by the finance ministry on the PSU banks should have positive impact on the PSU banks’ functioning over the medium to long term perspective,” Dipen Shah, head of private client group research, Kotak Securities.

The government on August 14 announced its plans to provide Rs.25,000 crore capital in the current and next fiscals to banks, while Rs.20,000 crore would be provided during 2017-18 and 2018-19.

The Rs.25,000 crore this year will be provided in three tranches.

At the same time, Indian markets will be impacted by global trend in commodity prices, rupee and yuan movements.

The yuan’s surprise devaluation last week had stroked fears of competitive devaluation across Asia, especially before the (US) Fed’s monetary policy decision due in September.

The yuan has fallen by 4.6 percent since August 11, its biggest devaluation since 1994.

The devaluation, intended to boost exports, has made investment in China cheaper, thereby leading foreign funds away from India.

This also impacted the rupee, which on August 13 fell to its lowest level against the US dollar in 24 months at Rs.65.23.

However, relief came to the global markets when yuan rose 0.05 percent on August 14. This helped stabilised rupee which stood at Rs.64.99 against the dollar.

“The trend in commodity prices globally, rupee movement and the sharp bounce back on Friday seems to continue in the week ahead,” Vineeta Mahnot, equity research analyst, Hem Securities.



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