The Reserve Bank of India's policy guidance, the pace and spread of the crucial monsoon rains, and the unlocking of states, with the fall in daily covid cases, will provide cues for the Indian equities going ahead
MUMBAI: Domestic equities slumped in opening deals on Monday, tracking the Asian peers amid indications that the US Federal Reserve will likely speed up the pace of policy reversal.
At 09.34am, the benchmark Sensex was down 0.9% at 51900 points, while the Nifty also lost 0.9% to 15520 points.
Analysts expect investors, globally, to adopt a cautious stance waiting to see what course of action other central banks take after the Fed's hawkish stance. In India, the Reserve Bank of India's policy guidance, the pace and spread of the crucial monsoon rains and the unlocking of states, with the fall in daily covid cases, will provide directions for the market going ahea.
"Markets are likely to spend some more time in a range and we expect volatility to remain high due to the scheduled derivatives expiry of June month contracts. With no major event, participants will be closely eyeing the global markets for cues. Besides, the progress of the monsoon and updates on the vaccination drive will also be in focus" said Ajit Mishra, VP Research. Religare Broking.
The minutes of the RBI's rate setting panel's 4 June meeting suggest that members have so far taken comfort in inflation being supply-side driven and within the tolerance band. The sharp increase in May’s CPI inflation suggests that unless price increases in May fully reverse in the next few months, the Monetary Policy Committee under its own guidance, will not be able to look through inflation anymore.
"We believe the RBI will remain in ‘wait and watch’ mode at the August meeting, even though it is likely to revise up its inflation projections. However, by the October MPC meeting, there should be sufficient clarity on both the growth damage and inflation persistence. Given our view that the growth impact of the second wave will be smaller than the RBI’s projection and our view of elevated inflationary pressures, we expect policy normalization to begin in Q4. We expect a reverse repo rate hike in Q4, and a total of 75bp in repo rate hikes in 2022," said Nomura Research in a note.
Meanwhile, shares of PNB Housing Finance fell 5% to hit their lower circuit limit following news that the Securities and Exchange Board of India (Sebi) has asked the mortgage lender to temporarily halt its proposed share sale programme.