No surprises will be a surprise
The market has been consistently surprised by the central bank over the last one year, writes Udayan Mukherjee.Updated: Apr 25, 2007 21:06 IST
Predicting short term market moves is virtually impossible. Predicting what our RBI governor has on his mind is completely so. The market has been consistently surprised by the central bank over the last one year. So much so, that now most favour a reactive stand to monetary policy measures rather than trying to preempt what the RBI could end up doing.
The monetary policy announcement which was largely a non event till a year back has suddenly become a pivotal one for the markets. In fact, today, it is possibly more important than the Union budget, which we make such a fuss about.
Consensus expectations hinge around a hawkish tone from the RBI today but no rate hike. Put simply, the governor will bark but not bite. But the weight of consensus means little for the governor, as we have seen often in the past. I am not even sure, a hawkish stance with no rate hike is such a good thing for the markets.
It may simply extend the lingering uncertainty. May be better if the RBI does a rate hike, either repo or cash reserve ratio (CRR), and be done with it. In the market's present frame of mind, this may result in one last dip for the rate sensitives and lead to their bottoming out. Either way, the market's reaction to the policy would be interesting. If it can shrug off this key domestic risk to the market, then the bulls are certainly firmly in charge.
The obvious watchlist today would include banks, autos and realty stocks. Banks have bounced from their recent lows and the market would be closely watching out for any indication from the RBI that they are less worried about inflation or credit growth. At these beaten down valuations, even a bit of good news will go a long way.
The same with autos where the spectre of slowing growth momentum looms large. Finally, one hopes the governor will touch upon the rupee's recent run and the RBI's stance on the issue. Its fight against inflation and the rupee's rise are somewhat interlinked. Either way, be prepared for surprises; after all,there isn't a dull moment with our Governnor.
First Published: Apr 23, 2007 19:00 IST