Are Indian stock markets already pricing in the outcome of the RBI policy?

The three-day meeting of the Monetary Policy Committee (MPC) is already underway, and RBI Governor Shaktikanta Das is scheduled to announce the outcome on Friday, October 8th. 

A Business Standard policy poll of 14 leading economists and market participants has suggested that the central bank might maintain the status quo on rates and also the ‘accommodative’ stance. But hints on policy normalisation, starting with the removal of excess liquidity, will also be watched.

At present the repo rate stands at 4%, reverse repo rate at 3.35%, and the cash reserve ratio at 4%.

Pankaj Pathak, fund manager (Fixed Income) at Quantum Mutual Fund, said: From a bond market perspective, liquidity guidance would be the key driver for short-tenor bonds, while longer-maturity bonds would depend on the quantum of GSAP.

For CARE Ratings chief economist Madan Sabnavis, the RBI’s language with respect to liquidity will hold a greater importance.

That apart, other key factors to watch out for in the RBI policy will be the possibility of revision in GDP or inflation forecast, especially against the backdrop of rising crude oil prices.

Echoing similar views, G Chokkalingam, founder, Equinomics Research & Advisory, expects a status-quo policy from the RBI.

Clearly, the consensus seems to be in the favour of a status quo on policy. But, how should investors play the markets ahead of the policy?

So, while we wait for the RBI-triggered action to unfold on Friday, expect the markets to trade sideways till then, with participants hesitant to build fresh larger positions ahead of the key event. 

After the RBI policy, the focus will shift to the earnings season, with IT major TCS set to announce its September quarter numbers after the market hours on Friday. On Thursday, however, the markets could remain range-bound, with stock specific action continuing.

That said, with the indices near record high, experts advise investors to remain selective and look for quality stocks.

Advice to new investors

Podcast by Kanishka Gupta