Every time, when the RBI Governor announces the monetary policy stance, the market reacts vibrantly as if the sky is going to fall. The reality is that within a day or two, the stock prices come down deeply, leaving a few million innocent retail investors poorer. CRR cut was announced by RBI Governor after about 2 years, the sensex and Nifty curve peaked up, witnessing a steep raise. It appears as if money has flown from utopia. Is it a market Tsunamii? Indian market mostly behaves on sentiments.. not taking into account the reality always. When dust settles down, there will be aselling spree and the market prices touch sea floor In fact, we will come to know our fate in a week or so.
I have my apprehensions due to the fact that this time, there was no policy rate cut, which was a much awaited one, considering the mounting debt burden of the Industry, falling headline inflation rate etc. The Euro zone crisis is another cause for concern. Even though we boast of not being impacted by the Global financial crisis ( we always quote how we managed during US sub prime crisis.), the fact remains that the FDI and FII withdrawal of money had definitely impacted the economy to a greater extent. Our trade deficit also clearly indicates that we are affected on westerly disturbances.
This time, RBI has announced CRR cut by 50 basis points which takes us to anew CRR of 5.5%. This means that about Rs 32000 But there is a little disappointment also because the market was anticipating Policy Rate cut. After continuously increasing repo on 13 occasions earlier, it was everyone's expectation that this time, there would be a Repo rate cut, given the downtrend in inflationary pressure in the system of late.
CRR cut of course is a welcome step by RBI to increase money supply. But not coupled with a rate cut, may not be beneficial for the simple reason that credit off-take may not shoot up, if it is not linked to interest rates. More over, my expectation was that a policy rate cut which might have resulted in reduction of mounting debt burden for Industry. Nevertheless CRR cut is needed and of course a welcome structural change to the ailing monetary stance and is expected to improve the liquidity position. However a policy rate cut could have geared up Open market operation and cheered up Industry.
CRR cut will induce Banks, especially Private banks to invest surplus in Bond market with an eye to improve NIM and Banks will definitely be happy, more so because FY end is round the corner . But their happiness may be short-lived , since it will neither improve credit off-take, nor reduce debt burden, without a supporting repo cut. In any case,let us believe, there is a reversal of monetary stance, indicating GROWTH at the end of tunnel.
Perhaps the way market has responded yesterday, if remains consistent, may pop up growth and bounce back the derailed Industry. As of now, the real impact of the latest monetary stance is not visible. So...Retail market investors (aam athmi)...beware...and play safe...CRR cut is just a change in monetary stance... do not hurriedly make a decision... the time is yet to ripe...I guess. Let us watch Fiscal results, election results etc etc.....HOPING FOR A BETTER TOMORROW
V Selvarajan
No comments:
Post a Comment