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The Indian stock market, which surprised analysts on Monday with its lacklustre reaction to the Union budget, rallied on Tuesday amid some favourable news flow from the global markets.
The hope on the Street now is that the Reserve Bank of India will soon cut interest rates as the government, despite several challenges, has not deviated from the fiscal consolidation road map. The central bank might, in fact, oblige the market with a 25 basis point cut in policy rates at or before the scheduled April monetary policy meeting.
The stock market will draw comfort from the fact that the government has opted for prudent fiscal management, which will further strengthen macroeconomic stability. However, this may not be enough to change the bearish tone on the Street due to a number of factors. Outlook on corporate earnings remains weak and markets will have to deal with global headwinds as the world economy is losing momentum.