Reserve Bank of India 2nd Feb 2016

Reserve Bank of India 2nd Feb 2016

Reserve Bank of India (RBI) will announce its sixth Bimonthly Monetary Policy Review on February 2, the last before presentation of the Union Budget for the next financial year (2016-17 fiscal) amid clamor for rate cut to give a boost to the economy. While many analyst and brokers are calling or expecting a rate cut by 0.25 bps on 2nd Feb 2016 we do not think that any rate cut is on the cards in Feb 2016 Monetary Policy Review as Inflation has been rising for 5 months in a row now. Inflation numbers from Aug-Dec 2015 (Aug 3.74, Sept 4.41, Oct 5, Nov 5.41 and Dec 5.61) has shown consistent rise. Since the inflation trajectory is showing upward move along with fiscal deficit concerns our view is that RBI will wait for budget which is to be presented on 29th Feb 2016 and after the budget then only look to cut rates by 0.25Bps. Assuming for 1 minute that RBI does cut rates on 2nd Feb 2016, then commentary will also play important role and force the Indian Stock Markets lower as the policy stance for RBI will change from current accommodative stance to neutral as there would be no room for further rate cuts in the Banking system in this calendar year. In a nut shell we are expecting a no change in policy.

In view of the above we suggest caution at higher levels and suggest to wait for a panic to set in (which is likely post policy meeting). Buy Nifty Futures / High quality stocks on dips during that panic. Ideally below 7300 spot Nifty.

Good Trading To You!