RBI Monetary Policy, India's Services Activity at 7-Year High, and Top Cues in Focus Today

Fri, 7 Feb Pre-Open

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Indian share markets witnessed buying interest yesterday and ended their session higher. The benchmark indices continued their momentum for the fourth consecutive day after the RBI kept repo rate unchanged at 5.15%.

Gains were largely seen in the telecom sector and finance sector, while IT stocks witnessed selling pressure.

At the closing bell yesterday, the BSE Sensex stood higher by 163 points (up 0.4%) and the NSE Nifty closed higher by 49 points (up 0.4%).

The BSE MidCap index ended up by 0.8%, while the BSE SmallCap index ended up by 0.6%.

Speaking of the current stock market scenario, while everyone out there is buzzing about the Union Budget and what it has in store for the stock markets, our analysts at Equitymaster are singing a different tune.

They are encouraging readers to look beyond the short-term blip that the Budget will bring and focus on the long-term trend that will rule the market.

Vijay Bhambwani, editor of Fast Profits Daily, has recorded his views on the market post the union budget in his latest video. You can access the same here: My Outlook for Traders After the Budget

Meanwhile, here's what Rahul Shah wrote about it in a recent edition of The 5 Minute WrapUp...

• All said and done, the fact of the matter is that the economy is indeed struggling.
  
  And it will be some time before a full-fledged recovery is achieved.
  
  However, is the situation so bad that it deserved a close to 1,000 point correction on the Sensex?
  
  Well, I don't think so.
  
  It is not as if the economic growth will fall dramatically from here. Yes, certain big bang measures in the budget would have led to a faster recovery perhaps. But ours is a long term story with certain hiccups along the way like we are witnessing right now.
  
  And that means pouncing on any adverse reaction from the market like the present one.

As per him, a meaningful fall in the market is an opportunity to buy the long term India story at a marked down price. And it should be seen as a boon and not a bane.

Already, the broader market valuation is looking a lot more attractive than it did a few weeks back.

Some more knee jerk reaction by the stock market and it could turn out to be one the biggest buying opportunities in years.

Also, the smallcap index is rebounding.

As per our smallcap analyst Richa Agrawal, you can find a lot of great buying opportunities in the smallcap space and this is a great time to be invested in smallcaps.

However, she also points out that not everything you touch will turn into gold. You should be very careful and selective in picking the most solid and promising smallcap stocks.

RBI Keeps Repo Rate Unchanged

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged at 5.15% - a 10-year low in its last policy review of the financial year 2019-20.

Consequently, the reverse repo rate stands unchanged at 4.90%.

All six members of the MPC were unanimous in their decision to stand pat on rates.

The bank said it will maintain 'accommodative' policy stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.

The MPC projected GDP growth for fiscal 2021 at 6% - in the range of 5.5-6.0% in H1 and 6.2% in third quarter. The committee had earlier projected GDP growth for the first half of fiscal 2021 at 5.9-6.3%.

The MPC sharply raised consumer price inflation projection to 6.5% for the fourth quarter of fiscal year 2020 from 5.1-4.7% earlier. The committee pegged CPI inflation for the first half of FY21 at 5.4-5.0% compared with 4-3.8% earlier.

RBI Governor Shaktikanta Das said that the repeat of status quo should not be seen as an indicator of future action. He further said that economy remains weak and the output gap is negative.

The MPC also noted that while there was need for adjustment in interest rates on small saving schemes, the external benchmark system introduced from 1 October 2019 has strengthened monetary transmission.

With the RBI keeping interest rates unchanged, the focus of market participants has now shifted to whether the RBI's decision will translate into better economic activity in the near term.

Speaking of monetary policy, as the chart below shows, RBI rate cuts have always had a big gap with bank lending rates.

Yet Another RBI Rate Cut May Not Result in Lower Lending Rates

Here's what Tanushree Banerjee wrote about it in one of the editions of The 5 Minute WrapUp...

• It will be a while before lower lending rates stoke the economy.
  
  Therefore, hoping for an immediate revival in the economy is futile. The RBI has no magic wand to do this.
  
  Rather look for stocks that can outperform irrespective of the RBI policy.
  
  I believe the cement sector may be a good place to start.
  
  One of my recent recommendations from the sector is a typical Rebirth of India stock.
  
  And I won't be surprised if it repeats its 2002-2006 performance.

India's Services Activity Hits Seven-Year High in January

The Indian service sector started a new year 2020 on a strong footing, on the back of fastest increases in new orders and output. As per the survey report, the seasonally adjusted Nikkei Services Business Activity Index surged to 55.5 in January from 53.3 in December.

Further, the Nikkei India Composite PMI Output Index, which measures both manufacturing and services, also rose from 53.7 in December to 56.3 in January.

The IHS Markit India Services Business Activity Index signalled the strongest upturn in output for seven years. The rebound largely stemmed from favourable market conditions and better underlying demand.

With new business growth ticking higher, services companies continued to add to their workforces. The rate of job creation was little-changed from December, thereby remaining above its long-run average.

Further, despite expanded capacities, and in line with strong influxes of new business, outstanding business at services firms continued to rise at the start of 2020. The rate of accumulation was, however, only slight.

The uptick in growth was accompanied by an intensification of inflationary pressures, with input costs rising to the greatest extent since February 2013 and output charge inflation picking up to a near two-year high.

How this trend pans out in the coming months remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

Pharma Companies Witness Buying; Hit 52-Week High

Shares of pharma companies were in focus yesterday with Granules India, Divi's Laboratories, J.B. Chemicals, and Alembic Pharma hitting their 52-week highs after reporting good set of numbers for the quarter ended December 2019 (Q3FY20) and positive corporate announcements.

Granules India gained over 6% yesterday after the company announced that its foreign arm had received approval from the US health regulator for Valganciclovir hydrochloride oral solution, an antiviral medication.

Divi's Laboratories surged 5% after the company said it has commenced commercial operations effective from Wednesday from a part of the DC-SEZ Unit in Telangana.

Meanwhile, shares of Ajanta Pharma surged over 10% yesterday after the company reported strong set of numbers for Q3FY20.

The company reported 61% year-on-year (YoY) jump in its net profit at Rs 1,076 million for Q3FY20. It had posted profit of Rs 670 million in the year-ago period.

Revenue from operation stood at Rs 6,512 million, up 34% YoY, while earnings before interest, tax, depreciation, and amortisation (EBITDA) grew 73% to Rs 1,856 million.

In a press release, the company said that during the quarter under review, India sales grew 12% YoY to Rs 1,950 million. Research and development (R&D) expenses were Rs 350 million.

To know more about the company, you can read Ajanta Pharma's latest result analysis on our website.

Speaking of pharma sector, in the video below, Tanushree tells us where the sector stands now and also about the potential for a rebound.

Watch Now...

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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