Week Ending 1 October 2015

The week gone by has again been a very volatile one, although it ended in the green on a week on week basis. RBI announced its monetary policy on 29 September. The RBI Governor had a surprise in store for the markets in the form of a 50 bps cut in interest rates. The Markets cheered the rate cut buy turning from close to -100 points to +100 points on the Nifty.

This move, of reducing the interest rates, was largely anticipated in this blog. We had given the reasoning behind the logic also, and have been proven right on that aspect. We rate this policy as one of the smartest in recent times. Lets see why it was one of the smartest.

1. Repo rate was cut by 50 bps to the lowest in last 4.5 years. This will increase liquidity in the system and financing for projects will pick up pace.

2. Domestic economic recovery is underway and this rate cut will boost the recovery to a great extent.

3. Slower global growth likely to take toll on Indian growth, which has been taken care of to a great extent by this rate cut.

4. US Fed is likely to raise interest rates which will lead to $ strengthening against all other currencies but INR is likely to hold ground due to finer points in the policy 

a. Union and State Governments are allowed to sell bonds to FIIs and FPIs. This step will help in more than one way. Firstly the Lending by Banks to the Governments will be under check keeping ample liquidity for private players. Also the placement of bonds to Foreign players will make sure that global money to the tune of 25000-30000 crores comes into India, which will keep the INR from misbehaving once the FED raises rates.

All in all it was a thumbs up monetary policy. 

Now, how do we trade the markets?

We have always asked to stay invested in fundamentally good stocks. Our view remains the same. There is nothing wrong fundamentally with our markets. 

Technically view remains intact. Nifty is range bound between 7600-8200. Any move on either side will only come if it sustains above 8200 or below 7600. We do believe however that Nifty has most likely bottomed out and is poised for upward move. Currently 8200 is a big hurdle for Nifty and further up move to 8600+ can happen only if it sustains above 8200.

Stay Invested, Happy Investing 

P.S. India is now number 1 in FDI peeping China and US. We received $31 B in first half of 2015 as compared to $24 B in entire 2014. "Achche Din"