>Karvy Bazaar Baatein

27 April 2009 to 03 May 2009


Markets ride on…
Although the BSE Sensex and the broader-based Nifty closed profi tably for the seventh consecutive week, the markets displayed high intraday volatility, mirroring the mixed sentiments across the globe. The RBI’s move to cut policy rates came as a complete surprise for the markets as many expected such a move post the election results. Accordingly, the Sensex and the Nifty rose 2.78% and 2.85%, respectively. Since the rally began on March 9, the Sensex has jumped nearly 40%, while the Nifty has risen more than 35%. Given that much of the rally was triggered by global cues, the Dow Jones Index itself has risen 23% during the period. The RBI, in its annual credit policy review last week, slashed the repo and reverse repo rates by 25 bps each to 4.75% and 3.25%, respectively. This move indicates that the central bank is giving increased precedence to the economic slowdown and the highly cautious stance that commercial banks have adopted in the current economic scenario. Accordingly, RBI cut rates in an effort to push credit off-take and to send out signals that the worst is over for the Indian economy, which has been hit by a demand slowdown in terms of exports and investment.

The central bank announced that it expects the economy to grow at 6% in the current fi nancial year. Moreover, it revised GDP growth estimates downward for the previous fi nancial year—from the projected 7% levels to 6.5%-6.7%. Since October 2008, the RBI has slashed the repo, reverse repo and cash reserve ratio heavily by 4.25%, 2.75% and 4.00%, respectively. The commercial banks, on the other hand, have responded quite meekly to these aggressive moves, with most of them lowering their prime lending rate only by 1.5-2.0% considering the high cost of funds raised previously, besides expectations of higher NPA levels and the vulnerable economic scenario.

Meanwhile, the WPI, which is at near-zero levels, rose marginally to 0.26% for the week-ended April 11, as against 0.18% a week earlier. The RBI added that it expects infl ation to pick up again, rising to around 4% for the full fi scal year. With the general elections expected to bring about one of the most fractured verdicts in history, we must brace ourselves for increased volatility until the results on May 16.

To see full report: KARVY BAZAAR BAATEIN