Another hike by Fed will put pressure on RBI to dip into its arsenal for residual rate action

On October 6, 2023, the Reserve Bank of India (RBI) announced its expected decision to maintain the status quo on interest rates. This decision was in line with the anticipated "withdrawal-of-accommodation" policy stance. However, there were a couple of unexpected elements in the policy statement.

Firstly, the RBI mentioned the possibility of conducting open market operations (OMO) sales intermittently to absorb excess liquidity in the system. Secondly, Governor Shaktikanta Das emphasized that the central bank's target rate for the Consumer Price Index (CPI) is specifically 4 percent, rather than a wider range of 2-6 percent.

Despite the recent surge in global yields, the RBI's Monetary Policy Committee (MPC) chose to focus on domestic factors and downplayed the impact of rising global yields. The RBI noted that the economy is on solid ground, supported by robust demand conditions, especially in urban areas, steady agricultural growth, government emphasis on capital expenditure (capex), recovery in industrial and manufacturing sectors, vibrant construction activity, and a buoyant services sector. The RBI expects demand conditions to further improve.

However, the central bank remains vigilant due to global uncertainties, such as volatile financial conditions, geopolitical risks, and economic fragmentation. The RBI has maintained its growth forecasts, but these risks necessitate ongoing monitoring.

Regarding liquidity, the incremental cash reserve ratio (I-CRR) measure, which expires on October 7, has been effective in keeping liquidity tight. However, liquidity in the banking system is skewed, with some banks parking funds at the Standing Deposit Facility (SDF) window while others borrow excessively at the Marginal Standing Facility (MSF) window. This has led to an increase in the weighted average call money rate.

Upon the expiry of the I-CRR window, some liquidity is expected to be released into the system, alleviating pressure on call money rates. To manage inflation, the RBI may need to consider conducting OMO sales to absorb excess liquidity.

The key message from this policy is the RBI's commitment to achieving a 4 percent CPI target, emphasizing that it will maintain tight liquidity even if CPI prints fall below 6 percent. Governor Das underscored the importance of combatting inflation, indicating that the MPC's struggle against inflation is ongoing.

While global yield volatility and rising oil prices may influence future policy decisions, the RBI is expected to maintain the status quo for an extended period, with no rate hikes or cuts in the near term. Rate reversal may be considered by April 2024, provided there are signs of a global economic cooldown and rate adjustments by other central banks.

Conversely, if the Federal Reserve continues its hawkish stance with another rate hike, it could exert pressure on the RBI MPC to take similar action. Tight liquidity conditions are anticipated throughout the current fiscal year to manage inflation, possibly involving intermittent OMO sales.

In summary, the RBI's policy decisions reflect its dedication to controlling inflation and maintaining economic stability, with interest rates expected to remain elevated for the foreseeable future.

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Rishabh Instruments IPO Sees Exceptional Oversubscription at 31.65 Times on Final Day

Nashik-based Rishabh Instruments, a prominent manufacturer of test and measuring instruments and industrial control products, has experienced remarkable investor enthusiasm during its recent initial public offering (IPO). The closing day of bidding, September 1, 2023, witnessed an overwhelming response, with bids received for 24.65 crore equity shares, significantly surpassing the issue size of 77.9 lakh shares. This extraordinary level of interest resulted in a remarkable oversubscription rate of 31.65 times.

Notably, high-net-worth individuals (HNIs) displayed notable interest by subscribing 31.29 times the allocation designated for them. Simultaneously, qualified institutional buyers (QIBs) demonstrated strong enthusiasm by bidding at a substantial 72.54 times the allotted quota.

Rishabh Instruments had allocated 50 percent of the offer size to QIBs, 15 percent to HNIs (non-institutional investors), and the remaining 35 percent to retail investors. Retail investors exhibited substantial interest by subscribing 8.44 times the reserved portion by the closing day.

The IPO had already shown robust demand, with a subscription rate of 2.46 times by the conclusion of the second day of bidding on August 31.

Rishabh Instruments aims to raise Rs 490.78 crore through its inaugural public issue, offering 1.1 crore equity shares within a price range of Rs 418-441 per share. The IPO includes a fresh issuance of shares valued at Rs 75 crore, primarily intended for expanding its Nashik manufacturing facility and supporting general corporate purposes.

Additionally, the IPO features an offer-for-sale (OFS) component comprising 94.28 lakh shares, valued at Rs 415.78 crore at the upper price band. These shares will be divested by the company's promoters and investor SACEF Holdings II. This OFS marks a complete exit for SACEF, a subsidiary of the South Asia Clean Energy Fund, which currently holds a 19.33 percent stake in Rishabh Instruments.

Rishabh Instruments, with a presence in India and overseas through five manufacturing facilities, specializes in designing, developing, and manufacturing electrical automation devices, metering, control and protection devices, portable test and measuring instruments, and solar string inverters. The company also engages in aluminum high-pressure die casting through its subsidiary, Lumel Alucast, which it acquired in 2011-2012.

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Axis Bank Sees 1% Surge as RBI Approves New Executive Director Appointment

Axis Bank's shares experienced a nearly 1% increase in value on August 18 following the approval of its new Executive Director. At 12:33 pm, the stock was trading at Rs 942.45 on the NSE, reflecting a 0.69% rise. The Reserve Bank of India sanctioned the appointment of Subrat Mohanty as Executive Director for a three-year term, beginning August 17. Alongside this news, Axis Bank introduced two lending products – Kisan Credit Cards and MSME loans – as part of its growth strategy.

The bank's newly launched Kisan Credit Card (KCC) and MSME loans will be facilitated through the Public Tech Platform for Frictionless Credit (PTPFC), a system established by the Reserve Bank Innovation Hub (RBIH). This move aligns with the RBI's efforts to streamline credit processes by leveraging digital information.

The lending products provided digitally without the need for document submission, will initially be available for customers in Madhya Pradesh (KCC) and across India (MSME loans). Axis Bank aims to use PTPFC's data resources to assess customer eligibility, including PAN validation, Aadhaar eKYC, Account Aggregator data, land record verification, and account validation.

The bank intends to expand and diversify its product offerings through the platform based on its learnings from the pilot phase. Axis Bank's management expressed enthusiasm about the potential for more efficient lending processes and improved customer experiences.

Several brokerage firms have expressed optimism about Axis Bank's prospects. They've assigned target prices and 'buy' ratings, citing the bank's steady performance and growth potential. The bank's stock has gained 10.31% over the past six months, outpacing the 7.8% rise in the Nifty Bank index.

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Over 80 smallcaps gain up to 40% even as market ends flat for the week

The Indian equity benchmarks remained almost unchanged for the week ended June 2 even after hitting a five-month high on buying in broader indices, the outperformance of realty stocks, and better macro and auto sales data. During the week, the 30-pack Sensex gained 45.42 points to close at 62,547.11 and the broad-based Nifty rose 34.75 points to end at 18,534.1.

The broader market, however, did better. For the week, the BSE midcap index rose nearly 2 percent and the small-cap index added 2.4 percent. The large-cap index ended flat. "Global markets were mixed as concerns about a weak global growth outlook persisted. India's Q4FY23 GDP growth improved to 6.1 percent and surprised on the upside," Shrikant Chouhan, Head of Equities Research (Retail), Kotak Securities, said.

India's GDP numbers beat expectations to rise 6.1 percent in the January-March quarter. Manufacturing PMI, too, expanded to a 31-month high of 58.7 in May from 57.2 in the previous month. BSE realty, healthcare and auto indices gained around 1.5-3 percent during the week, he said. BSE oil & gas and energy index corrected around 3 percent.

The auto index got a boost from May sales. Bajaj Auto reported a 29 percent jump in sales in the month at 3,55,148 units and Escorts Kubota reported highest-ever figures for May by selling 9,167 tractors, while Mahindra & Mahindra's sales were up 14 percent YoY. The Nifty realty index gained nearly 4 percent, media 3 percent and healthcare added 2.5 percent. The oil & gas index was down.7 percent and the energy index was nearly 2 percent.

Where is Nifty50 headed?

Rupak De, senior technical analyst, LKP Securities

The Relative Strength Index (RSI) has shown a bearish crossover, indicating a potential downturn in prices. The overall sentiment in the market is expected to remain sideways, indicating a lack of clear direction in the near term. The Nifty is likely to find support at 18,450-18,500, while resistance levels are anticipated at 18,650 and 18,800.

Jatin Gedia, Technical Research Analyst, Sharekhan by BNP Paribas

The Nifty consolidated during the week but will likely resume the uptrend in the coming week. From a short-term perspective, we maintain our positive outlook on the index for a target of 18,800. The level of 18,460- 18,420 will act as the crucial support zone, while the hurdle is at 18,600–18,660.

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Top 10 Factors that affect the Stock Market on Monday

Bulls kept charging the markets throughout the truncated week that ended April 7, pushing the benchmark indices to sustain their rally. A host of reasons such as higher-than-expected PMI manufacturing data, monthly auto sales numbers, provisional Q4FY23 numbers from banks and NBFCs, FII inflow, and the RBI's surprise pause in interest rate hike with upward revision in growth forecast to 6.5 percent from 6.4 percent aided the surge.

The BSE Sensex climbed 841 points or 1.4 percent to 59,833, and the Nifty50 rose 239 points or 1.4 percent to 17,599, supported by banking and financial services, auto, pharma, and infrastructure stocks.

The broader markets also traded higher with the Nifty Midcap 100 and Smallcap 100 indices gaining 1 percent and 2 percent.

After yet another encouraging week, the momentum is expected to continue along with some volatility in the holiday-shortened week beginning April 10 with focus on corporate earnings, inflation data, global news flows, and FOMC minutes, experts said. 

1) Corporate Earnings

The corporate earnings season for the March FY23 quarter will be kicked off by index heavyweights Infosys on April 13, Tata Consultancy Services on April 12, and HDFC Bank on April 15.

2) CPI Inflation

The consumer price inflation, which measures the change in prices of a basket of goods and services, is likely to drop below the 6 percent mark in March on April 12, with moderation in food inflation, against 6.4 percent in the previous month, while core inflation is likely to be sticky around 5.9-6 percent.

3) US Inflation and FOMC Minutes

On the global front, investors will look for cues from US inflation numbers and FOMC minutes scheduled to be released on April 12. Overall, the inflation is expected to moderate further to around 5.3 percent in March against 6 percent in the previous month, while the core inflation is likely to be steady at around 5.5 percent, as per the forecast available on Trading Economics.

4) Global Economic Data Points

5) FII Flow

The consistent FII inflow due to the falling US dollar index and bond yields also aided the markets and experts believe the flow is expected to continue given the hope that Federal Reserve may consider a pause in interest rate hike cycle sooner than later.

6) Oil Prices

Crude oil prices reached to a month's high, with international benchmark Brent crude futures rising to over $85 a barrel, from $79.77 on a week-on-week basis and WTI crude climbing from $75.67 to $80.46 a barrel in the same period, after a surprise OPEC+ output cuts and more-than-expected draw in US oil stocks. But the gains were capped towards the end of week after the weak US economic data raised fears over demand outlook.

7) Technical View

The Nifty has formed bullish candlestick pattern on the weekly scale, with making higher top higher bottom for second consecutive week, and the momentum indicator RSI (relative strength index) giving a nice positive crossover. Also the index climbed back above the 50-week EMA (exponential moving average - 17,426), which is another positive sign.

8) F&O Cues

The weekly Option data indicated that the 17,600 is expected to be a crucial level for the next direction of Nifty50, where we have seen maximum Call as well as Put open interest. Further, the index may find strong resistance around 17,600-17,800 area, whereas 17,500 is expected to be near-term support followed by crucial support at 17,000 levels.

9) India VIX

The volatility cooled down considerably in the last couple of weeks, with the India VIX fell by 8.8 percent for the passing week to 11.79, the lowest weekly closing level since July 2021, from 12.93 levels last week.

10) Corporate Action

Schaeffler India, Britannia Industries, Varun Beverages, Visaka Industries, Edelweiss Financial Services, and Goodluck India will trade ex-dividend, while Emami will turn ex-buyback in the coming week.

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