Equity market outlook • RBI’s recent moves to lower MSF rates by 125 bps along with the government’s thrust to provide cheap money to specific sectors like consumer durables and auto may improve sentiments on the margin • The delay in Fed tapering and measures taken by the RBI have led to the recent market rally. However, the structural problems of higher real rates and lower GDP growth still remain intact along with eventual tapering of QE easing by US Fed. Therefore, markets are likely to be volatile on news flows and the result outcome of specific companies • Investors who have been continuing with their SIPs or regular investments have benefited the most in the recent volatility • Any correction from current levels should be utilised to accumulate quality stocks as upsides from thereon could be rewarding Debt market outlook • The WPI and CPI prints jumping substantially to way above consensus levels have led bonds to lose the bullish tailwind that had been developing lately on the back of an earlier than expected second round MSF cut from the RBI and generalised rupee strength. The market is expecting a 25 bps rate hike from the RBI in its policy meeting on October 29 considering the same • Short-term and accrual oriented funds with attractive yields could fare better on a risk adjusted basis as they have relatively limited interest rate risk and yet offer potential to provide some capital gains as and when the RBI phases out more of the liquidity tightening measures. A further 25 bps repo rate hike and 25 bps MSF rate cut are expected to bring the difference to 100 bps • The medium-term outlook over long duration funds remains positive as structural positives in terms of slowing growth and better monsoons having a positive impact on inflation remain. Also, the current account deficit seems to be coming under control while the currency also has stabilised. Announcement of one OMO already has indicated RBI’s intention to not let yields go significantly higher
Posted on: Sat, 19 Oct 2013 20:05:49 +0000
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