A volatile session ended with major expectations from EU and therefore turned with a positive closing. Nifty ended at 5134.4 with 79.65 points' gain whereas Sensex gained 16936.22 with 258.34 points in positive.
Supported by European markets were gaining nearly 1% this afternoon. This Sunday, the Greeks will go to vote again after failing to elect a government in May. The Greeks want to stay in the Euro, but feel harsh austerity measures are driving the country into poverty, and hence want these fiscal discipline targets to be renegotiated.
In Nifty50 stocks, Grasim was the top gainer by 5.75%, closed at 2481.3 and Sterlite was the top loser by 1.96% which closed at 99.9.
Suzlon was the turnover topper by the traded quantity and SBI was by the traded value.
Advance/Decline ratio was positive by 1.39:1 as 813 stocks gained and 585 stocks declined today on NSE.
Nifty Outlook :
Immediate Support : 5020
Immediate Resistance : 5210
RBI Mid Quarter Policy :
Yesterday, India reported headline inflation at 7.55 percent in May, in line with expectations, which however, under ordinary circumstances would keep the RBI focused squarely on controlling prices. However, Indian GDP growth slipped to a nine-year low of 5.3 percent in the March quarter, and industrial production was flat in May, data this week showed, adding to a sense of urgency about the deteriorating state of the Indian economy.
Possibilities by RBI :
# No rate cut in CRR or in REPO : With sagging economic growth, moderate core inflation, and increasing pressure from the government, it is unlikely that the RBI does nothing, as a downturn in domestic and global economic conditions has spurred calls for central bank action. Until a few weeks ago, the majority view was that the RBI would keep rates and CRR on hold at its June review.
Market reaction: There would be sharp sell-off across all asset classes.
# Rate cut in CRR as well as REPO : Many market participants are betting on a modest reduction in both the repo rate and CRR because the combination of interest rate and liquidity easing would send a signal that the RBI is keen to prop up growth by providing liquidity to banks while ensuring inflation is under control. An easing in core inflation to around 4.85 percent in May may give the central bank comfort to cut rates. Such an action would compel banks to cut lending rates as improved cash flow brings down their cost of deposits, which has remained high. The market also expects the RBI to sound pro-growth in its statement, and at the same time highlight inflation risks. But if 0.25% cut in CRR we dont think that banks will also reduce their lending rates.
Market reaction: The rupee may rise marginally, with stocks posting modest gains.The market has considered the 25 basis rate cut in CRR, anything above it will support market to rise and v.v.
# No cut in CRR and cut in REPO : The RBI may decide only to reduce rates but refrain from infusing more market liquidity, as it is already injecting cash into the system through bond purchases and may prefer to save the CRR tool for when liquidity tightens sharply. High food prices and consumer price inflation continue to pose risks to inflation and the RBI may not be comfortable turning dovish. However, only a repo rate cut may not be enough to spur banks to cut lending rates, or to improve sentiment sufficiently to support the growth.
Market reaction: The market has risen on expectations of 25 basis points' rate cut in CRR such a mild step could disappoint investors and push up bond and swap rates.
#Above 25 basis points rate cut in CRR and no change in REPO : The RBI could choose only to reduce the CRR, which would release liquidity and bring down banks' cost of funds immediately, enabling them to reduce lending rates. Many view a reduction in CRR as a more effective tool than a rate cut. The central bank has been under increasing pressure to cut the CRR after finance ministry officials and the country's largest state bank have called for one. The RBI may be reluctant to cut CRR by such a big margin, however, as that could fuel inflationary pressures.
Market reaction: Initially equity market will zoom but Government bond and swap curves could steepen with short-end rates softening as cash pressures ease. Concerns that a steep CRR cut could prompt the RBI to avoid bond purchases could keep long-end rates elevated.
Major Global Markets :
Hang Seng :+425.54
Nikkei : +0.43
FTSE : +33.51
CAC : +57.07
DAX : +108.02
Dow Futures : +47.00
Nasdaq Futures : +8.25
Gold : 1625.63
Silver : 28.74
USD/INR : 55.5900
EUR/INR : 70.1650
GBP/INR : 86.3460
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