India Morning Report: Bank Policy (weekend edition) and the running reallocation to India

INR 4000 Crores or INR 40 Bln in purchases in a full day 6 hour session of the BSE (Sensex, BSE100) and NSE (Nifty 50) as well as the new MCX(SX40) reaffirmed the cat among the pigeons set by the first Fed announcement of withdrawal. The international markets thus have in the Rupee another unique, equally unrequited opportunity to cement back to the 61-62 levels reached yesterday and for the Central Bank to shore up on reserves depleted by more thn $15 Bln due to the wanton announcement in May. When serious withdrawal of QE starts in December however, it would still be positive allocations for India Inc and equities and bonds should thus continue to respond positively from here.

Given that, the 6100 levels are not too high or an extreme reaction by markets o the No Taper announcement and the Ruee and the markets can indeed go back up to even better levels. Yesterday’s improvements however with a 22% jump in YES Bank for example would have indeeed taken too many active participants a surprise for the movement to continue from where it left yesterday afternoon(3.30pm)/evening(5.00 pm)

RG Rajan’s first policy announcement later in one-two hours(press) must now include the mndatory rerieve from a penal MSF wether y 100 basis points or slightly more or less depending on what perfectly meshes with the minimized OMOs further from here as the Rupee could still ned to respond positively for it to lock in these rates at 61-62 and as far as it is now RBI’s prime mandate of monetary policy, we definitely need to get to a 8% yield roadmap for the market to remain in tune with various legs of government and policy

Banks are a big buy at current value levels and allocations could be split in both investment and trading portfolios, though assuming RBI will deliver is right now anathema to the markets. Yes Bank at 380 or kotak at 700 are hardly overpriced and the FII allocation to Axis increasing would only imply an additional trading basket for market players, not substituting the appetite for banking stock still out there. If the rally can indeed sustain itself, it would be for inflows returning as they have and will continue thru the end of this series. The market buzz, therefore, to bring the markets back to sane levels could well turn out to be a false cry from the Fox and unfortunately that again means DIIs will not be buying too soon and will be selling into this rally

The reference t o weekend edition in the titling if it has missed your attention, is just a reference to a market friendly Governor being preeminently guessable as presumed by the market and hence the watchfulness on Bank stock sin the run up to the 11 AM statement /1 pm presser with banks annoucing the expected unshackling of liquidity tightening measures


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