Manna from RBI and relief from FED keep markets in cheer!

RBI delivers "manna from heaven" post "hard talk"

It was a pleasant surprise to get 50 bps rate cut from RBI on 29th September, when the expectation was between 25 bps cut or rate pause. RBI did talk tough ahead of policy review date, in favour of "silent savers" and against the "vocal borrowers" retaining January - March 2016 CPI forecast at higher end of 5.5-6.0%. MARKET PULSE did highlight the possibility of aggressive monetary easing post the diktat to Banks to set the Base rate against incremental cost of short term sources of funds. The 50 bps rate cut (and resultant crash in short term cost of funds to 7.25-8.0% across 91-365 days) will drive Banks Base rate to median 9.5%. RBI pro-market rate action has indeed shifted the tone from bearish to bullish consolidation.

Sign of FED stay put on rate pause in 2015

The relief for risk-on assets is also from build up of hope of extended delay in start of rate hike cycle by FED into 2016. In the Indian context, risk of FII pull-out from India equity and debt markets has gone out of the radar. It is relief for Rupee as well with RBI off from the $ bid.

The combination of 50 bps rate cut from RBI against steady rate policy of FED is short term relief through rest of 2015.

Sentiment steady between risk-on and risk-neutral till FED rate move

The relief for NIFTY is from shifting focus from 7700-7950 to 7950-8200, while 10Y bond yield hit 7.50% (from 7.78-7.83% buy zone) retaining over 75 bps spread with operating policy rate. Rupee held at 66.10-66.20 for accelerated gains beyond 65.50 stop loss point for re-initiation of short-dollar book (or add-on to short-build initiated at 66-67), shifting focus to 64.50-66 to the relief of importers.

It is good to be back in India. Will revert soon with detailed analysis taking stock of the moves between 23rd September to today!

Moses Harding