5th December, will be the second time RBI MPC will meet after the
liquidity issue is raised. But more importantly it will be first time after the much-discussed RBI Board meeting took place.
If graph below which shows the movement of 10yr Bond Yield and Repo Rate , is to be believed and keeping it as the only decision making indicator then the 10yr Bond Yield is pricing a rate cut.
But this is the not the factor which influences MPC for the decision of repo rate. MPC have met thirteen times since being formed and has seen eight times with at least one member voting against the decision. This can be seen in below chart where we create Dot Plot for RBI MPC meetings.
The main data that was even mentioned the RBI Governor in last meeting is the Consumer Price Index (CPI) which is measure of inflation in the country. RBI as of now has targeted 4% with -/+2% movement supported with higher growth rate. Below is CPI charts which declining trend on Year on Year(YoY) basis but volatile movements on Month on Month (MoM). Though RBI takes into consideration only YoY but will be careful of any volatile trend on monthly basis.
TARGET INVESTING VIEW:
Repo Rate & Policy Stance:
We believe that the reduction in crude oil during October led to reduction in CPI which will also impact the November CPI data as crude oil fell again in the month. But taking into consider such volatile moves from crude it will influence the CPI band.
Thus there will STATUS QUO in terms of repo rate with one or two MPC members differing to it and the stance will be kept as same as last policy which should mean there will not be rate cut from here.
Liquidity Crunch:
As per previous communications RBI does not see any liquidity issue in the system which was also mentioned to the government. But if we see the Bloomberg Liquidity Indicator there is a liquidity issue in the system for past couple of quarters.
In such a case some experts believe there should be cut in CRR but according to us that will not solve the issue as Banks and MFs have turned very cautious on NBFC lending.
Thus we believe there will be NO CRR CUT and they have already introduced certain measures for example relaxed norms on Govt. Securities held by banks and reduction in loan holding period by NBFC.
IF WE OUR BASE CASE TAKES PLACE WE EXPECT NIFTY TO FALL FOR THE DAY LED BY PSU BANKS & NBFCS. STOCKS - SHORT INTRADAY DEWAN HOUSING & INDIABULLS HOUSING.
IF CRR CUT COMES THEN WE WILL SEE NIFTY NEAR 11,000 LED BY PSU BANKS & NBFCS.
STOCKS - BUY INTRADAY DEWAN HOUSING & INDIABULLS HOUSING.