Sensex Opens Flat Ahead of RBI Monetary Policy Review

Wed, 8 Feb 09:30 am

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Asian markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.19%, while the Hang Seng is down 0.15%. The Shanghai Composite is trading down by 0.45%. Stock markets in the US ended their previous session on a positive note.

Meanwhile, share markets in India opened the trading day on a flattish note with caution ahead of the monetary policy review today. The BSE Sensex is trading lower by 7 points while the NSE Nifty is trading higher by 4 points. The BSE Mid Cap index and BSE Small Cap index have opened the day up by 0.5% & 0.3% respectively.

The rupee is trading at 67.37 to the US$. Sectoral indices have opened the day on a mixed note with information technology and FMCG stocks leading the decliners. While, consumer durables and metal stocks are among the top gainers on the BSE.

The central bank governor Urjit Patel is scheduled to take the stage at the Reserve Bank of India (RBI) headquarters in Mumbai at 2:30 pm today to announce the last monetary policy of the fiscal. This will be the second monetary policy after the government decided to demonetize high-denomination notes and the first since the Budget 2017.

Economists predict that Urjit Patel will deliver a final interest rate cut today to buoy growth. Falling inflation and the government's fiscal prudence in Budget might propel the RBI to cut the key repo or lending rate today.

In its October policy review, Urjit Patel's first as governor had sprung a surprise by cutting interest rates by 0.25%. In December, just a month after Rs 500 and Rs 1000 currency notes were banned, it kept the repo rate unchanged at 6.25%. So, what could the RBI do this time around?

As the chart below shows, the repo rate has fluctuated in a range over the last six years. It is back to where it was in November 2010. The last change was a cut to 6.25% last October. So, where to from here? It is entirely possible the RBI could reduce the rate a bit more.

Repo Rate is Trending Down

Reportedly, the six-member Monetary Policy Committee's (MPC) decision on a possible rate cut will depend on the funds situation at Indian banks post-demonetisation and a firming up of global oil prices. Meanwhile, with a key macroeconomic data showing services sector contracting for the third straight month in January, also provoked expectations of a rate cut by the RBI.

Other factors which will guide the RBI towards lowering the rates include Finance Minister Arun Jaitley cutting the fiscal deficit to 3.2% for next year and the dovish stance adopted by the US Fed, the reports noted.

Moving on to the news from stocks in energy sector. As per an article in a leading financial daily, As the government plans to merge state-run oil companies to create a behemoth to take on competition from overseas integrated players, GAIL (India) which comes under the ambit of the proposal may remain a separate vertical even in a merged entity.

Finance Minister Arun Jaitley in his Budget last week announced the government's plan to merge state-run oil & gas entities to create an integrated company. According to him, the merged entity will provide the capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders.

The plan comes at a time when private players like Essar, RIL and BP and Royal Dutch Shell are planning it big in the retail space, but if the proposal works out these players may not be able to compete with a single large state-controlled behemoth.

As GAIL has distinct businesses such as gas contracts, petrochemicals, city gas distribution and pipelines, which are not purely oil industry play, it shall probably remain a separate vertical, the reports noted.

The ambition is really big. The question is whether the government will be able to bring about an effective merger of all these companies. Then there is the big challenge of efficiently running such an organization. A lot of thought will have to go into all these issues before the government decides to put this ambitious plan into action.

To know more about the company's financial performance, subscribers can access to GAIL's latest result analysis and GAIL stock analysis on our website. GAIL share price began trading up by 0.7%.

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

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