India, since Fed announced its tapering plans, got its act together and has done quite well in pushing some key reforms in parliament. RBI on its part took some controversial, but crucial steps to stem the decline in rupee that followed the Fed announcement. Now, when Fed has put a halt on its tapering plans, we all can just keep our fingers crossed and hope that Indian govt. does not become complacent and let go off this lifeline. We hope that reform momentum continues and we get our house in order before the next shitstorm hit us.
Sensex gained 2.7%, Nifty gained 2.8% and CNX Midcap was up by 1.3% this week.
Monday – Sensex flat at 0.0%, Nifty down by 0.2%, Midcap down by 0.5%
Investors were disappointed on Monday as RBI released its WPI inflation figures. RBI while formulating its policies uses WPI data along with CPI as an anchor. According to data released on Friday, retail inflation dropped in August. However unlike retail inflation, WPI rose to six month high to 6.1% in August (July – 5.79%). Market is anticipating that upturn in WPI will make it difficult for newly appointed RBI governor to cut rates.
Tuesday - Sensex up by 0.3%, Nifty up by 0.2%, Midcap down by 0.3%
Investors remain cautious ahead of two key events this week. On Sept 18, Fed will take decision on whether to continue to taper and by how much. Street is expecting tapering of $5-$10 billion every month. Anything above or below that range can cause sharp movements in the indices. Raghuram Rajan has decided to unveil its maiden policy on Sept 20 after getting a handle on Fed announcements. These two events together may hold key to future movements of Indian indices.
Wednesday - Sensex up by 0.8%, Nifty up by 0.8%, Midcap up by 0.5%
Expectations from Fed meeting continue to weigh on the markets. Markets closed higher as FIIs continue to build positions in the Indian markets.
Thursday – Sensex up by 3.4%, Nifty up by 3.7%, Midcap up by 2.9%
Fed surprised the market with announcement of deferring its tapering plans and instead decided to continue with its stimulus amid weak economic growth in US. I already highlighted in June that how the timing of tapering is suspicious as US economy, and with it global economy, continues to struggle. Markets celebrated the decision as day of reckoning for many of emerging economies like India, has deferred to some unknown date in the future.
Friday – Sensex down by 1.9%, Nifty down by 1.7%, Midcap down by 1.3%
In his maiden policy, Raghuram Rajan stumped the investors with a repo rate hike. Repo rate is now 7.25%. Rajan made it clear that fighting the inflation and exchange rate management is his top priority, so there is a need of liquidity tightening. RBI, in a bid to lower the cost of capital of banks, reduced the MSF by 75 bps from 10.25% to 9.5% and slashed the minimum daily CRR requirement from 99% to 95%.
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