Another hike by Fed will put pressure on RBI to dip into its arsenal for residual rate action

The Reserve Bank of India (RBI) made its expected decision during the October 6 bi-monthly policy review, maintaining the status quo on interest rates. However, there were a couple of surprising elements in the policy announcement.

Firstly, the RBI mentioned its intention to conduct open market operations (OMO) sales periodically to absorb excess liquidity. Additionally, RBI Governor Shaktikanta Das emphasized that the central bank's target rate for the Consumer Price Index (CPI) is 4 percent, not the wider band of 2-6 percent.

Despite the recent spike in global yields, the RBI's Monetary Policy Committee (MPC) chose to overlook it, citing evolving global market volatility as a key risk to monitor.

On the inflation front, there is optimism after the spike observed in July and August. The headline CPI is expected to moderate, and the RBI is encouraged by the Core CPI, which has eased to 4.8 percent since the beginning of the year.

Furthermore, the RBI's surveys indicate improvements in anchoring inflation expectations. Therefore, the central bank made only slight adjustments to its CPI inflation forecasts for Q2, Q3, FY24, keeping the overall FY24 and Q1FY25 forecasts unchanged at 5.4 percent and 5.2 percent, respectively.

The RBI observed that the Indian economy is in a robust position, with strong demand conditions, steady agricultural momentum, government-led capital expenditure, recovery in industrial and manufacturing activity, active construction, and a thriving services sector. While demand conditions are expected to improve further, the RBI remains vigilant regarding global risks, particularly financial volatility, geopolitical uncertainties, and economic fragmentation.

Regarding liquidity, while the incremental cash reserve ratio (I-CRR) measure has maintained tight liquidity, the RBI noticed imbalances within the banking system. Some banks chose to park liquidity at the SDF window, while others borrowed significantly at the MSF window, resulting in an increase in the weighted average call money rate.

The upcoming expiration of the I-CRR window will inject liquidity into the system and ease pressure on call money rates. However, the RBI may need to conduct OMO sales to absorb excess liquidity and control inflation.

The key takeaway from this policy is the RBI's commitment to achieving a 4 percent CPI target, not a broader 2-6 percent range. This suggests that even if CPI prints fall below 6 percent, the MPC will maintain its stance of tight liquidity.

Governor Das emphasized that inflation remains a significant risk for the Indian economy, and the MPC is determined to bring inflation closer to the target while supporting growth.

While global yields and oil price fluctuations pose risks, the RBI is expected to maintain its stance of no rate hikes or cuts for an extended period. High-interest rates in India are anticipated to persist, with a potential rate reversal not likely until April 2024, subject to global economic conditions and central bank actions.

In the event of another Fed rate hike and continued hawkishness, the RBI may face pressure to make residual rate adjustments, given the prevailing tight liquidity conditions and the potential for intermittent OMO sales.


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BSE Adjusts Circuit Limits for Jio Financial, RailTel, and 8 Other Stocks

BSE Modifies Price Bands for Ten Stocks, Including Jio Financial Services, to Safeguard Market Stability and Investor Interests

In a significant move on September 1, 2023, the Bombay Stock Exchange (BSE) announced adjustments to the price bands of ten stocks, aimed at better managing market volatility and ensuring the protection of investor interests.

Jio Financial Services (JFS)
One of the notable changes was the extension of the price band for Jio Financial Services (JFS) from 5 percent to 20 percent. It is pertinent to mention that JFS had recently been removed from BSE's indices, including the prestigious benchmark 30-pack Sensex. This removal, initially scheduled for August 23, faced delays as the stock remained consistently locked in the lower circuit.

Despite its exclusion from the indices, JFS has ambitious plans to diversify into the insurance sector. It intends to offer a range of insurance products, including life, general, and health insurance, potentially through partnerships with global players. Furthermore, JFS is entering the asset management industry through a collaborative effort with Blackrock, with an initial investment commitment of $300 million.

Other Stocks:
In addition to JFS, several other stocks witnessed adjustments to their price bands. Shri Venkatesh Refineries, RailTel Corporation of India, India Pesticides, SRG Securities Finance, Dolphin Offshore Enterprises, and Super Fine Knitters now operate within a 10 percent price band. In contrast, the price bands for Rishabh Digha Steel & Allied Products, Vertex Securities, and RattanIndia Power were reduced to 5 percent.

These modifications to the price bands reflect BSE's commitment to upholding market integrity and ensuring that extreme price fluctuations in stocks are mitigated effectively.

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Axis Bank Sees 1% Surge as RBI Approves New Executive Director Appointment

Axis Bank's shares experienced a nearly 1% increase in value on August 18 following the approval of its new Executive Director. At 12:33 pm, the stock was trading at Rs 942.45 on the NSE, reflecting a 0.69% rise. The Reserve Bank of India sanctioned the appointment of Subrat Mohanty as Executive Director for a three-year term, beginning August 17. Alongside this news, Axis Bank introduced two lending products – Kisan Credit Cards and MSME loans – as part of its growth strategy.

The bank's newly launched Kisan Credit Card (KCC) and MSME loans will be facilitated through the Public Tech Platform for Frictionless Credit (PTPFC), a system established by the Reserve Bank Innovation Hub (RBIH). This move aligns with the RBI's efforts to streamline credit processes by leveraging digital information.

The lending products provided digitally without the need for document submission, will initially be available for customers in Madhya Pradesh (KCC) and across India (MSME loans). Axis Bank aims to use PTPFC's data resources to assess customer eligibility, including PAN validation, Aadhaar eKYC, Account Aggregator data, land record verification, and account validation.

The bank intends to expand and diversify its product offerings through the platform based on its learnings from the pilot phase. Axis Bank's management expressed enthusiasm about the potential for more efficient lending processes and improved customer experiences.

Several brokerage firms have expressed optimism about Axis Bank's prospects. They've assigned target prices and 'buy' ratings, citing the bank's steady performance and growth potential. The bank's stock has gained 10.31% over the past six months, outpacing the 7.8% rise in the Nifty Bank index.

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Market ends week with small gains; realty index climbs 4%, rupee appreciates

Indian equity market witnessed a rangebound movement to end almost flat in an eventful week ended June 2 amid better-than-expected GDP data, 31-month-high manufacturing PMI, higher GST collections, strong auto sales in May and closure of US debt ceiling discussions. In this week, the BSE Sensex gained 45.42 points to close at 62,547.11, and Nifty50 rose 34.75 points to end at 18,534.1.

The BSE Small-cap index surged 2.4 percent with Nucleus Software Exports, Force Motors, Centum Electronics, V2 Retail, Nureca, Brightcom Group, The Hi-Tech Gears and Kopran rising 26-40 percent, while losers included SEPC, Sunflag Iron and Steel Company, SVP Global Textiles, Sintex Plastics Technology, Campus Activewear, Technocraft Industries (India), Greaves Cotton and Precision Wires India.

BSE Mid-cap Index rose nearly 2 percent led by Power Finance Corporation, Nuvoco Vistas Corporation, 3M India, REC, Aurobindo Pharma and Apollo Hospitals Enterprises.The BSE Large-cap Index ended on a flat note. Gainers were ICICI Lombard General Insurance Company, FSN E-Commerce Ventures (Nykaa), HDFC Asset Management Company, Zomato and ICICI Prudential Life Insurance Company, while losers were Adani Total Gas, Adani Transmission, Vedanta, Oil and Natural Gas Corporation, Coal India and Adani Enterprises.

Foreign institutional investors (FIIs) were net buyers in equities this week as they bought equities worth Rs 6,519.73 crore, while domestic institutional investors (DIIs) sold equities worth Rs 1,043.1 crore.Among sectors, the Nifty Realty index gained nearly 4 percent, Media index added 3 percent and Healthcare index added 2.5 percent, however, Oil & Gas index shed 2.7 percent and Energy index fell nearly 2 percent.

In the BSE Sensex, Reliance Industries lost the most in terms of market cap, followed by ICICI Bank, Tata Consultancy Services and Infosys. On the other hand, Hindustan Unilever, Titan Company and Bharti Airtel added the most of their marketcap.During this week, the rupee gained 27 paise to end at 82.30 to a dollar on June 2 against its May 26 closing of 82.57.

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Top 10 Factors that affect the Stock Market on Monday

Bulls kept charging the markets throughout the truncated week that ended April 7, pushing the benchmark indices to sustain their rally. A host of reasons such as higher-than-expected PMI manufacturing data, monthly auto sales numbers, provisional Q4FY23 numbers from banks and NBFCs, FII inflow, and the RBI's surprise pause in interest rate hike with upward revision in growth forecast to 6.5 percent from 6.4 percent aided the surge.

The BSE Sensex climbed 841 points or 1.4 percent to 59,833, and the Nifty50 rose 239 points or 1.4 percent to 17,599, supported by banking and financial services, auto, pharma, and infrastructure stocks.

The broader markets also traded higher with the Nifty Midcap 100 and Smallcap 100 indices gaining 1 percent and 2 percent.

After yet another encouraging week, the momentum is expected to continue along with some volatility in the holiday-shortened week beginning April 10 with focus on corporate earnings, inflation data, global news flows, and FOMC minutes, experts said. 

1) Corporate Earnings

The corporate earnings season for the March FY23 quarter will be kicked off by index heavyweights Infosys on April 13, Tata Consultancy Services on April 12, and HDFC Bank on April 15.

2) CPI Inflation

The consumer price inflation, which measures the change in prices of a basket of goods and services, is likely to drop below the 6 percent mark in March on April 12, with moderation in food inflation, against 6.4 percent in the previous month, while core inflation is likely to be sticky around 5.9-6 percent.

3) US Inflation and FOMC Minutes

On the global front, investors will look for cues from US inflation numbers and FOMC minutes scheduled to be released on April 12. Overall, the inflation is expected to moderate further to around 5.3 percent in March against 6 percent in the previous month, while the core inflation is likely to be steady at around 5.5 percent, as per the forecast available on Trading Economics.

4) Global Economic Data Points

5) FII Flow

The consistent FII inflow due to the falling US dollar index and bond yields also aided the markets and experts believe the flow is expected to continue given the hope that Federal Reserve may consider a pause in interest rate hike cycle sooner than later.

6) Oil Prices

Crude oil prices reached to a month's high, with international benchmark Brent crude futures rising to over $85 a barrel, from $79.77 on a week-on-week basis and WTI crude climbing from $75.67 to $80.46 a barrel in the same period, after a surprise OPEC+ output cuts and more-than-expected draw in US oil stocks. But the gains were capped towards the end of week after the weak US economic data raised fears over demand outlook.

7) Technical View

The Nifty has formed bullish candlestick pattern on the weekly scale, with making higher top higher bottom for second consecutive week, and the momentum indicator RSI (relative strength index) giving a nice positive crossover. Also the index climbed back above the 50-week EMA (exponential moving average - 17,426), which is another positive sign.

8) F&O Cues

The weekly Option data indicated that the 17,600 is expected to be a crucial level for the next direction of Nifty50, where we have seen maximum Call as well as Put open interest. Further, the index may find strong resistance around 17,600-17,800 area, whereas 17,500 is expected to be near-term support followed by crucial support at 17,000 levels.

9) India VIX

The volatility cooled down considerably in the last couple of weeks, with the India VIX fell by 8.8 percent for the passing week to 11.79, the lowest weekly closing level since July 2021, from 12.93 levels last week.

10) Corporate Action

Schaeffler India, Britannia Industries, Varun Beverages, Visaka Industries, Edelweiss Financial Services, and Goodluck India will trade ex-dividend, while Emami will turn ex-buyback in the coming week.

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Top 5 stocks that moved the most on December 9

Benchmark indices saw a lot of pain on December 9. At one point, Sensex was down over 600 points and finally closed 0.62 percent lower at 62,181, down 389 points. Nifty shed 112.70 points to end at 18,496. About 1199 shares advanced, 2220 shares declined, and 113 shares were unchanged. Here are the top 10 stocks that moved the most

One 97 Communications | CMP: Rs 544.75 | The parent company of Paytm surged over 7 percent after the company said its board will consider a share buyback on December 13. "The management believes that given the company's prevailing liquidity and financial position, a buyback may be beneficial for our shareholders," Paytm added.

HCL Tech | CMP: Rs 1029.80 | At its investor day held on December 8 in New York, the company said revenue growth in constant currency terms is seen at lower end of 13.5-14.5 percent YoY band. The stock was the biggest index loser, tumbling over 6 percent.

Vadilal Enterprises | CMP: Rs 2674.50 | The stock gained 3.46 percent after the board approved sale and disposal of shares of Vadilal Forex & Consultancy Services Limited and Majestic Farm House Limited. It also approved sale and disposal of certain movable properties and immovable properties of the company.

Marico | CMP: Rs 524 | The stock gained 2.6 percent after Marico South East Asia Corporation, a wholly owned subsidiary of the company, entered into a definitive agreement to acquire 100% shares of Beauty X Joint Stock Company ("Beauty X"), an entity incorporated in Vietnam which owns the personal care brands "Purité de Prôvence" and "Ôliv".

Sun Pharma | CMP: Rs 993 | The stock gained 1.24 percent after brokerages said that impact of 'import alert' on Halol plant will have insignificant impact on revenue and profit. "US generics story stopped being material for company since 2019-20," noted Bernstein. It has an Outperform call on the stock with target at Rs 1099 per share.

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