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After record highs, markets to focus on RBI policy review

LiveMint logoLiveMint 31-07-2017 Nasrin Sultana

Mumbai: The markets are expected to continue their momentum, after touching record highs last week. While corporate earnings continue to flow in, monetary policy review will be a deciding factor for the markets this week.

In June 2017, the Reserve Bank of India (RBI) kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25%. Consequently, the reverse repo rate under the LAF remained at 6%, and the marginal standing facility (MSF) rate and the bank rate at 6.5%.

“Upcoming RBI monetary policy and June quarter earnings will drive the market sentiments in the coming week. Expectation of a rate cut has already started being factored in the markets,” said Vijay Singhania, founder-director, Trade Smart Online, a leading discount brokerage firm.

The central bank will review the monetary policy on 2 August. The monetary policy committee (MPC) may cut interest rates by 25 basis points as June retail inflation hit a record low. According to a Mint poll, out of 15 economists, 11 expect the RBI to cut the repo rate by 25 basis points (bps). A basis point is one-hundredth of a percentage point.

In a 26 July report, Edelweiss Securities Ltd said, “Going by the central bank’s own consumer price index (CPI) projections for FY18, headline inflation is likely to average under 4% during the year. Against this, repo rate of 6.25% is too high, in our view, given weak economic recovery. Hence, we expect 25 bps rate cut in the August policy review. We believe macro conditions warrant a more aggressive response. Guidance will be critical to watch.”

In June 2017, RBI kept the policy repo rate under LAF unchanged at 6.25%. Consequently, the reverse repo rate under LAF remained at 6%, and the MSF rate and the bank rate at 6.5%.

Companies which will be reporting June quarter earnings this week include InterGlobe Aviation, Reliance Power, Tech Mahindra, Titan, Indian Oil Corporation (IOC), Lupin, Punjab National Bank (PNB), Dabur India, Mahindra and Mahindra (M&M) and Marico, among others.

Vinod Nair, head of research, Geojit Financial Services, said better-than-expected results from blue-chip companies will attract investors to large-caps as compared to small- and mid-cap companies.

“However, it is also possible that this trend may change during the last phase of the result season which has a muted outlook. Having said that, any consolidation in the near term should be utilised given strong growth outlook in the long term,” he added.

Two initial public offerings (IPO) will open for subscription this week. The Security and Intelligence Services (India) Ltd IPO, which will open on Monday, has raised Rs350.81 crore from 18 anchor investors.

The price band for the offer, which will close on Wednesday, is Rs805-815 per equity share and the issue comprises of fresh equity shares aggregating up to Rs362.25 crore and an offer for sale of up to 5,120,619 equity shares by existing shareholders.

Government-run Cochin Shipyard, which aims raise up to Rs1,468 crore through its share sale offer, will be open for subscription from 1-3 August. The PSU has fixed the price band at Rs424-432 for its IPO of 33,984,000 equity shares.

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