 "Markets discount rate cut; but what next for investors?")
The market reaction to the rate cut, however, was subdued this time compared to the January cut, as the benchmark indices trimmed gained as trade progressed. The CNX PSU Bank Index, for instance, that touched an intra-day high of 4,064.8 lost nearly 7 per cent to end the day at 3,783.85 levels, a loss of around 3 per cent from its previous close.
So what’s different this time and why aren’t the markets as enthused as the previous rate cut?
Post the presentation of the Union Budget on February 28, most analysts were expecting the focus to shift to the RBI for policy action. A recent report by Morgan Stanley, for instance, said: “We believe that the focus will now shift to approval of key policy legislation in Parliament — Amendment to Land acquisition Act, Goods and Services Bill, Coal Mining Bill and Bill for an increased foreign direct investment limit in insurance — and potential monetary policy action.”
For some, even the timing of the rate cut was a surprise. “We were expecting this cut to materialise in the April 7 policy meeting. We are surprised by the timing of the rate cut, especially coming in so soon after the government signed up for a slower fiscal consolidation path,” said Pranjul Bhandari, Paul Mackel and Prithviraj Srinivas of HSBC Global Research in a report.
With two key events – the Union Budget and the rate cut by the RBI – now over, what’s the road ahead for the markets and should you invest in rate sensitive stocks?
Analysts say that going ahead, the markets will focus on pick-up in earnings growth and the passage of key bills in both Houses of Parliament.
U R Bhat, managing director, Dalton Capital Advisors, does not expect the Nifty to decisively cross 9,200 in the next three months. “ I think the Nifty is likely to remain between 8,750 and 9,200. However, if there are any signs of a pick-up in the economy or the policy decisions that have been taken show some traction, then the overall market scenario can be completely different,” he says.
Explains Andrew Holland, chief executive officer, Ambit Investment Advisors: “The Budget, in my opinion, wasn’t fiscally irresponsible. I don’t see an untoward reason for the government pushing Raghuram Rajan and we were expecting a rate cut when our markets were around the levels where we currently are.”
“Since October 2014, we have been expecting the RBI to cut rates by 50 bps. Did I expect this – I am not sure. But I think there the RBI governor has room to do a lot more (rate cuts). I expect 50 bps rate cut by June 2015–end. The markets, in fact, have moved ahead of everything – be it earnings, economy. So what we will see now is probably markets consolidate until we start to see real growth in the economy starting to pick up and translate into earnings growth for the market. We now need to see reality starting to happen,” he adds.
Jayant Manglik, president-retail distribution, Religare Securities, also believes that a combination of expectations, a good budget and the repo rate cut has pushed the Sensex over the new milestone of 30,000.
“Ultimately, it is just a number. In the first quarter of FY16, it will have to be backed up by corporate earnings growth to sustain. Till then, all-round optimism will keep markets firm. Over the long-term, we are confident that the measures taken by the government will translate into industry growth and a Sensex of 40,000 by 2017 is absolutely achievable,” he said.
As an investment strategy, Ajay Bodke, head of investment strategy and advisory, Prabhudas Lilladher says capital goods, automobiles and banking are sectors where one can be overweight. Larsen & Toubro (L&T), Cummins India, Ashoka Buildcon, Ashok Leyland, Maruti Suzuki, Bharat Forge, Axis Bank, ICICI Bank and State Bank of India (SBI) are some of the stocks he likes.