Quote on RBI policy from Mr. Mustafa Nadeem, CEO, Epic Research
A rate cut of 25 BPS, 5th inline in 2019 is what was widely expected since the stance of the RBI has remained the same; accommodative. This is cumulatively 135 BPS. We are now down from 6.5 to 5.15, back to where we were in 2010. This is in line with the expectations of the street. We believe this is done for two reasons. Firstly it is important to see that it is a unanimous vote and one which was out was suggesting for 40 BPS. So RBI is ready to do more to push growth in the economy. this is going to boost the MSME and other SME space while banks would have to work on that as well. Secondly, the post-corporate tax cut by FM we believe this is in line to boost the demand side issues in the economy; to improve the consumption since a lot of things are now done for the supply side. It is also very well accepted by RBI and it was seen that liquidity was an issue in NBFCs and other spaces in the last few quarters and that is now seen to be resolved. With the current tone which is very dovish and unanimous in the board; there may be further rates cut. The only negative aspect is the downward revision in GDP for FY20. Markets have discounted the rate cuts and since it is delivered there may be some short term profit booking, mild correction but this move is in line to ensure that long term growth remains robust.
Technically, a short term profit booking or a correction towards 11100- 11150 would rather be healthy since there is a value play in that zone and some buying may come in at those levels. The undertone is largely bullish and the investor should utilize the dips.