Weekly Market Commentary - Aug 4, 2014 - Aug 8, 2014

The week started off with good positive movement in anticipation of more relaxation in funds available to lenders from RBI. RBI didn’t disappoint on that one. While reducing the SLR and bond holdings percentage in HTM portfolio, governor made sure the funds availability for investment into productive assets increases considerably.

The governor did acknowledge that the fight with inflation is far from being over and there needs to be more cautiousness and patience on the street before he gets into the rate cutting mood.

The highlight of the week was Governor Raghuram Rajan warning that global markets are at the risk of a "crash". The culprit he identified was the loose monetary policy game developed economies are playing where they are trying to outdo each other in charging rock bottom interest rates.

Raghuram Rajan in an interview said, “unfortunately, a number of macro- economists have not fully learned the lessons of the great financial crisis. They still do not pay enough attention - en passant - to the financial sector. Financial sector crises are not as predictable. The risks build up until, wham, it hits you".

Sensex ended this week down by 0.6% while Nifty was down by 0.4% and Midcap down by 1.1%

Monday - Sensex up by 1.0%, Nifty up by 1.1%, Midcap up by 1.1%
Benchmark indices started the week with an upward move led by software services exporters such as Infosys which gained as rupee weakened ahead of RBI's policy review. Market is widely expecting RBI to keep interest rates on hold as inflation is still outside central bank’s comfort zone.

Tuesday - Sensex up by 0.7%, Nifty up by 0.8%, Midcap up by 0.7%
Both Sensex and Nifty inched higher as RBI loosen the grip on liquidity more while keeping the interest rates unchanged as expected. Central bank reduced the Statutory Liquidity Ratio by 50bps to 22% of deposits (SLR is the amount of liquid assets such as gold or govt. (approved) securities, that a bank must maintain as reserves other than the cash). This move will help banks to channel more funds into productive sectors of the economy.

Wednesday - Sensex down by 0.9%, Nifty down by 1.0%, Midcap down by 0.6%
Markets snapped as RBI policy review effects get absorbed in the market. Lenders such as SBI and ICICI fell on worries that RBI move of reducing SLR requirement and amount of bonds in held-to-maturity (HTM) portfolio will led to rise in yields and decline in value of their debt holdings. The existing benchmark 10-year bond yield surged 10bps to 8.83%, its biggest single-day rise in four months, on Tuesday and an additional 2bps on Wednesday.

Thursday - Sensex down by 0.3%, Nifty down by 0.3%, Midcap down by 0.5% 
Markets continued to trade weaker as both Sensex and Nifty declined by 0.3% on profit booking. Geo-political concerns also weighed on the investors’ mind.

Friday - Sensex down by 1.0%, Nifty down by 1.1%, Midcap down by 1.7%
Investors continued to stay cautious as US President Barack Obama authorized targeted air strikes in Iraq. There was a sell-off in global markets on rising worries of another drawn-out conflict in the region.