On another day, the RBI's monetary policy may have evoked a different response. The fact that the market recovered from its initial knee-jerk reaction and even managed to close with a smart 300 point gain reflects strength. Especially as it comes just two days after a gut-wrenching global sell-off. The message is clear: the market has found its feet again. Sure, if global cues change so may we, but for the moment our market seems to have weathered the storm. The huge pile-up of short positions since Friday has started unravelling as well, along expected lines. The spurt in the last hour of trade on Tuesday was clearly on account of a short squeeze, reflected in the way the Nifty futures discount narrowed to just 20 points.
To be sure, this was not a disastrous monetary policy for the market. Yes, most people would not have expected the CRR hike but since it will not lead to any hardening of interest rates this time, the market may not be too worried. What this policy may do though is to delay the process of lending rate declines which the street was hoping to see fairly soon. Rates may not go up but could remain sticky for a while. The central bank's reiteration of inflation concerns may, on the margin, erode just a wee bit of the conviction that inflation and interest rate fears are totally behind us. Nothing alarming then, just a mild dose of caution. Given the recent turbulence in the market, this may have led to some volatility but the ease with which the market shrugged it off was quite impressive. It underscores the point that we are still in the midst of a bullish trend.
Tuesday also marked the end of peak news flow season. The monetary policy is behind us and earnings season has drawn to a close. It is time now to analyse the earnings and reflect on the hits and misses. This has been a mixed earnings season, particularly if the numbers are read without forex gains. For the rest of this week, the market will simply price in the earnings news and react to global events. After that as the news flow dries up, liquidity flows will determine whether August is a month of consolidation after the heady gains of July or of significant directional moves.