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Market Watch: Why market shrugged off the policy

Whether the Reserve Bank of India (RBI) signals a rate easing or not through the repo, the market will nudge rates down, writes Udayan Mukherjee.

india Updated: Jan 29, 2008 22:43 IST

It came and went and nothing changed. The stock market’s reaction was quite interesting. It sold off for exactly two minutes and then stabilised. The fact that Dr Reddy chose not to slash rates should a) have not come as a surprise and b) did not warrant a meaningful selloff. In fact, I would even think traders were waiting for the short dip to go long.

The market recognises that rates will ease; whether it's April or July is a matter of debate. Also, whether the Reserve Bank of India (RBI) signals a rate easing or not through the repo, the market will nudge rates down. I wouldn’t be surprised at all if deposit and lending rates start easing materially by the first quarter of 2008-09, regardless of what the RBI does. The monetary policy was never going to be the major trigger for either a durable breakout or a complete panic breakdown.

One by one, the triggers are getting out of the way. Technicals have eased considerably with the cut in futures positions. It will ease further as the Reliance power refunds start hitting bank accounts on Friday. The monetary policy is behind us. Now for the outcome of the US Fed meeting tomorrow and beyond that, the Union budget. The Fed, in it's populist mould, will probably cut 50 basis points again and that may lead to a temporary revival in global equity sentiment. If, with that spurt, the Nifty can effect a breakout above the 5500 zone, maybe trading sentiment will improve. It's tough to make a reasonable guess on where this market will be four weeks from now. I am a bit lost. One could as easily argue for a breakout in February as a retest of 4500 if the global situation deteriorates. I gather most analysts are confused which is why the consensus call is a range between 5000 and 5500. Let's get past the Fed meeting and we can revisit the scenarios. Till then it may be wise to sit on your hands.