Markets Weak Ahead of RBI Policy

Tue, 5 Apr 09:30 am

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Barring China, major Asian stock markets have opened the day on a negative note. Stock markets in Japan and Singapore are trading lower by 1.8% and 1.4% respectively. Benchmark indices in Europe ended their previous session on a positive note. Whereas, stock market in the US ended their previous session lower by 0.3%. The rupee is trading at 66.24 per US$.

Indian stock markets have opened the day on a weak note. The BSE Sensex is trading lower by 95 points (down 0.4%) and NSE Nifty is trading lower by 31 points (down 0.4%). BSE Mid Cap and BSE Small Cap are trading lower by 0.3% and 0.2% respectively. Major sectoral indices have opened the day in red with stocks from automobile and telecommunication sectors witnessing maximum selling pressures.

As per an article in Business Standard, fresh investment or capital expenditure (capex) from private sector companies is expected to remain muted in the financial year 2016-17. This is mainly on account of low capacity utilization of existing units, highly leveraged balance sheets and static demand.

However, public expenditure is expected to fare better than private investments. The government's efforts to aggressively push infrastructure spending in roads, railways and defence is expected to increase demand in few sectors such as cement and steel.

Reportedly, government's push would lead to better capacity utilization across sectors and revamp the investment cycle. These sectors that have backward linkages with industries such as cement, machinery, steel etc, will get a boost.

Further, a reduction in the benchmark repo rate by the Reserve Bank of India (RBI) could possibly provide an impetus to the capex cycle. Will RBI cut rates today? While the market seems to be expecting a 0.25% rate cut, Ajit Dayal, in a recent article in The Honest Truth, challenged the consensus. He thinks a 1% rate cut is possible. Read this interesting piece to get his insights on why a 1% rate cut is on the cards.

But that's just a part of the picture. Vivek Kaul has argued that the RBI should not cut the repo rate by 1%, or at least not all at once. His reasons are sound - the strongest being that banks have not passed the cut in deposit rates to the lenders and that the entire situation needs to be viewed from the point of view of savers. For more about Vivek's views on interest rates, click here.

Who do you think is right - Ajit or Vivek? To vote your opinion, please click here.

In another news update, lenders to the defunct Kingfisher Airlines Ltd have decided to reject promoter Vijay Mallya's offer for paying a sum of Rs.60 billion as a settlement package to dues worth more than Rs 90 billion.

Mr Mallya has agreed to pay Rs 40 billion upfront by the end of September 2016. Further, he may pay another Rs 20 billion, provided he won a lawsuit filed against a plane engine maker. Reportedly, a lawsuit was filed by KFA in 2013 or 2014 before a civil court in Bangalore against a company for allegedly supplying defective engines for its aircraft.

One of the banks stated that the offer is badly structured and the possibility of actually receiving the money seems like a distant dream. Parts of the settlement offer are dependent on the outcome in court cases which are still pending in courts in India and London.

In fact, Vivek Kaul has written quite an interesting piece on this. In the article Mr Kaul states, the moral hazards the banks would face if they agree to Mr Mallya's proposal. Click here to read more...

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