As the Reserve Bank of India (RBI) sets to review its monetary policy on August 5, capital markets across the country expect of all things, the interest rates to remain unchanged. Although a positive surprise is appreciable, the current inflation levels would give little or no room for such easing. RBI would also be forced to not cut rates as the rupee slips further against the dollar. The RBI would also consider the fiscal deficit of more than 56% of the annual target during the first three months of 2014 alone before it proposes any changes in the policy.
One of RBI’s main concerns would be the declining rupee, which has depreciated nearly 90% against the dollar within the last 10 years. Global weakness as well as the absence of enough triggers in domestic markets would also stifle the nation’s equity market. Foreign inflows have also slowed down considerably after July this year, thanks mainly to increasing risk averse mindsets of global investors. The expected rise of rates in the US market would also lead to an increased outflow of money from the country towards the former, thereby affecting domestic markets further.
However, investors in India can stay safe from such issues. When compared to its market peers, India’s equity market happens to be a safe haven. It is also the only emerging economy that was not affected by the cut imposed by the IMF, which forecasts a 6.4% growth for the country next year.
India may not have a runaway market. However, its markets are stable enough to help individuals construct strong portfolios and build long-term wealth. As such, any correction by the RBI can be taken as a green signal to buy stocks. The rise of the Sensex from 20000 to 26000 points in the last six months also indicates that a correction would be healthy for Indian markets.
The Indian market would also lookout for HSBC Services PMI for India on Tuesday. The ensuing week would also see the government produce the insurance bill in the Parliament for clearance. Companies like Mahindra & Mahindra, Hero Honda and SBI are also expected to declare their quarterly results (April-June) during the course of the week.
The Reserve Bank of India (RBI) will review its monetary policy on August 5. While increasing inflation rates and global weakness would leave little room for corrections, many believe that the domestic market would likely benefit from any correction which can be deemed healthy for the latter.