RBI STATUS QUO FAILS TO ENTHUSE MARKETS

  • The Nifty and the Sensex reacted to the sharp US correction the previous night. With the RBI maintaining rates and holding its tightening stance, the markets were disappointed and never really recovered from lower levels.
  • The short-term worry for the global markets, especially emerging markets like India will be the inverted yield curve in the US which signals at a likely recession. This has been seen for the first time in the last 10 years.
  • FIIs were net sellers to the tune of Rs. (-358) crores while DFIs sold Rs. (-792) crore on Wednesday. Domestic funds have been selling in select counters like Sun Pharma and HDFC Bank in the last few days.
  • In the aftermath of the sharp correction in the US markets on Tuesday, markets across Europe and Asia were deep in the negative territory on yield curve concerns. SGX Nifty is trading positive but could be driven by Asian cues.
  • The negative yield worry in the US spooked metal stocks as these are the most vulnerable to a slowdown in global growth. We stay negative on Hindalco and Vedanta and estimate another 20% downside from current levels.
  • With oil stabilizing, most of the downstream companies are once again looking reasonably priced. We suggest buying IOCL at Rs.135 for targets of Rs.160 on the upside in the next one quarter.
  • We stay positive on Dewan Housing at around the Rs.210 levels for targets of Rs.260 in one quarter as the latest policy also intensely addresses the issue of infusing liquidity into the markets and supporting NBFCs.
  • The big story to watch out will be the inverted yield curve in the US which clearly points at an impending recession. That could be much bigger than trade wars.

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