Indian stocks are poised to start the year on a high note, as Nifty futures continue their upward trend, riding the excitement generated by the Reserve Bank of India (RBI’s) massive monetary policy announcement made last Friday.
Market sentiment is expected to be further boosted by a generally positive mood in Asian equity markets, fueled by optimism over US-China Trade Talks. All eyes on the short-term bond yields in the local market where it is expected that the recent rally will continue.
A 50 basis point unexpected cut by the Reserve Bank of India in its repo rate coupled with an important cash injection to the banking sector could provide the impetus needed for companies to accelerate their plans to list on the stock exchange.
Low interest rates reduces the barrier to equity issuance. This makes IPOs more appealing for companies as well as investors.
The upcoming public offer from HDB Financial Services will serve as a litmus test to determine whether or not this renewed IPO enthusiasm is justified. HDB Financial Services recently received regulatory approval.
Wall Street takes a second look at India and derivatives
This optimism doesn’t just apply to the domestic market.
Wall Street banks have become increasingly positive about Indian stocks, highlighting the nation as an outlier despite the uncertainty surrounding global trade.
The positive outlook is spreading to the short-term products market.
JPMorgan recommends shorting the Nifty for a month, while Bank of America advises using hedges that are now cheaper to protect long positions.
This positive market sentiment will likely be further amplified by the surprise liquidity injection from RBI on Friday, which is expected to add fuel to India’s strong momentum.
Early rains dampen demand for air conditioners
Some sectors face weather-related challenges, even though the financial markets may be booming.
The early monsoon has also caught room air conditioner manufacturers off-guard.
Analysts at Centrum and IIFL report that demand for air conditioners in rooms began to decline as early as April as summer did not live up to harsh temperatures predicted by the weather bureau.
Centrum believes that the industry volume for this quarter may be lower than expected, possibly by up to 25%-30% compared with last year.
The air-conditioner industry is now hoping that the new standards for energy efficiency, which are set to take effect in January of next year, will encourage consumers to buy ahead and upgrade their units before these changes.
Shares of major players, including Voltas Blue Star and Epack Durable have declined between 26% and 34% this year.
Short-term bond yields rise on liquidity boost
After the RBI made a surprise announcement to reduce the Cash Reserve Ratio (CRR), the short-term bonds market saw a strong rally.
This move, according to the central bank will bring in a significant amount of liquidity to the system.
Analyse your actions
Brokerages have changed their ratings on several stocks.
- HDFC Bank : Raise to Buy at ICICI Securities, Price Target 2300 Rupees.
- Kotak Mahindra Bank: Rated New Add at InCred; PT 2,410 rupees.
- PNC infratech: Raise to buy at ICICIdirect.com. PT 360 Rupees.
The post RBI’s rate-cut bonanza: Why India’s IPO pipeline may be rewritten as new information becomes available.
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