High rate of volatility seen in Indian indices during April. Market witnessed an upward trend during the first half of the month, whereas in the second half there was continuous selling pressure. Sensex touched a height of 18047 and a low of 17277 in April. Both sensex and nifty closed just a few points above last month’s closing figure.
Considering the global scenario, Greek crisis and Goldman Sachs issue were the major ones. U.S. Securities and Exchange Commission sued Goldman Sachs Inc. for fraud tied to collateralized debt obligations. The firm is facing inquiries in UK and Germany. A 110 billion euro ($147 billion) plan to bail out Greece reduces the risk of a debt default of that country. But according to experts it will not be a complete solution for the problem. The residue of these crisis remains now and investors across the globe are more cautious.
Considering Indian market, RBI credit policy announcement was the major event. The central bank hiked the key rates by 25 basis points. The rates which are now effective are Repo-5.25%, Reverse Repo-3.75% and CRR-6%. RBI is optimistic about bringing down inflation figures which is at 9.9 percent in March. The food inflation figure is even more dangerous which is at 17.65 percent according to the latest data.
The closing figure of sensex for April is at 17559. It gained 31 points (0.18%) against it’s March closing rate. Nifty recorded a gain of 0.55 percent to close at 5278. It touched a height of 5399.65 during April. Buying interest scaled down to Smallcap and Midcap stocks. Both were up by 8.4% and 5.6% respectively. Consumer durable stocks were the major gainers, the sector was up by above 10 percent. Reality (6.6%) and Banking stocks (4.7%) were also hot favorites among investors. Oil and gas stocks were under severe selling pressure. The sector was down by 2.3 percent. Metal and Engineering stocks were also in the negative terrain. FIIs continued their buying activity in stocks, in April they bought equities worth Rs. 9361 crore. Whereas domestic institutions sold Indian equities worth Rs.1715 crore. During the last week ahead of F&O expiry the turn over in Indian market was much higher.
According to RBI estimate the final real GDP growth for 2009-10 may settle between 7.2 and 7.5 per cent. Which itself is a decent one. The Euro zone crisis is not over yet. There are reports that apart from Greece, countries like Portugal, Spain and Ireland may face difficulties in the near future. Concern about these crisis is clouding above Indian market also. Recently China hiked it’s CRR rate also. These developments may prove bad for Indian equities as well. There will be range bound movement in Indian market in the near term. Little caution is the need of the hour. At the same time an eye for opportunity is not a bad idea.

The cards are shown. The symbols are as expected. Reserve bank of India increased key rates. The major reason was inflation. What is the immediate reason for inflation, it is the budget proposal to hike the price of petroleum products. Everyone was against it but the rates are increased. It fueled the inflation figures and it ignited to 9.89 percent for the month of February. The RBI forecast was only 8.5 percent. It will touch double digit in March 2010.
In order to contain inflation RBI hiked key rates. In January also there was an increase in the Cash Reserve Ratio. Now Repo and Reverse Repo rates are hiked.

Repo Rate: 5 percent

Reverse Repo Rate: 3.5 percent

CRR: 5.75 percent

SLR Rate: 25 percent
(source- RBI website)

How will the rate hike affect the common man, in many ways is the answer. Two major reasons for inflation were higher base effect and the price hike of food articles. The latest food inflation figures are at 16.30. It eased a little bit. But still very high. What are the reasons: one, population is increasing. Two: available land for agriculture shows drastic decrease. No one is ready to produce food, everyone is ready to consume. Agriculture has lost it’s worth in modern times.
Government machinery should involve more actively in the public distribution system. Food grains should be made available in open market from FCIs (food corporation of India). Black marketing should be banned. Food cultivation should be increased. This in turn will ease the food inflation and as a result whole sale price based inflation would decrease.
Now in this changed scenario loans will become more costlier. Interest rates of car and house loans would increase. In it’s annual policy review on April 20, 2010 RBI will again increase the rates in the inflation figures still go up. Common man’s purchasing capacity will be decreased. He will spend less. Excess money will be wiped off. Red signal for market and India incorporated (some sort of consolidation would take place). The burden of living will definitely increase because the pockets are emptier than earlier now a days. No cut in fuel price can be expected in the near future. Government has passed the burden of inflation to us, now it is our duty to carry this.
Repo Rate
Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI.

Reverse Repo Rate
Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks.

CRR Rate
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

SLR Rate
SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers.

Strong selling pressure witnessed in Indian stock market during the second half of January. Year 2010 started with a positive note in Indian stock market. Traders expressed huge buying interest in the beginning. Expectations were high. Everyone predicted an upward trend only. FIIs also bought Indian stocks during this time. Bombay sensitive index touched a peak of 17790 in January. But the situation changed suddenly. It happened with the Q3 result announcement by heavyweights. Some of the figures were less than expected by investors. Which weighed hard on Indian bourses. RBI policy announce was the major event during this period. Anxiety regarding this policy announcement wiped out so many points from Indian Indices. Banking and Reality stocks felt the heat. US president Barack Obama’s comment on banking sector, bank rate hike in China were the global factors which affected Indian stocks badly. In January, sensex lost 1107 points against it’s closing figure in December 2009.
Barack Obama’s comment against outsourcing came as a second blow for Indian stock market. In the last week alone FIIs sold Indian equities worth Rs. 7100 crore. Altogether corporate results were mixed. Inflation still remains a major concern for policy makers. The WPI based inflation rate in India is at 7.3 percent (In December) which is the highest in 13 months. Higher food price is the main reason for this record inflation figure. In order to contain inflation RBI hiked the CRR rate by 75 basis points to 5.75. It is believed that this move would remove the excess money from the market.
January closing rate of sensex was 16358, which is 6.34 percent down from it’s last month closing. Sensex was within the range 15982-17790 during this period. Nifty also recorded an above 6 percent decrease from it’s December closing in January. It closed well below the 5000 mark and the rate is 4882.  FIIs and DIIs turned out to be net sellers. FIIs sold Indian equities worth Rs. 500.30 crore. Domestic Institutions also became net sellers in January, they sold equities worth 1311.30 crore. Midcap and smallcap stocks were down by 3 percent and 1.5 percent respectively.
In the sectoral front all sectors except consumer durables witnessed downward trend. Reality and metal stocks melted the most due to severe selling pressure. Reality index down by above nine percent against it’s December closing.  Engineering and auto stocks recorded 7 percent and 6.5 percent decrease respectively.
Looking forward union budget is the major event in February. Budget will determine the direction of Indian stock market in the near future. After continuous selling pressure market shows some sort of consolidation now. RBI policy had redrawn the GDP forecast to 7.5 percent from 6 percent earlier. Above 7 percent growth rate seems to be attainable. According to RBI policy growth is the need of the hour. CRR rate hike would suck out Rs. 36,000 crore from Indian market by February end. In the union budget steps can be taken to reduce the bad effects of this rate hike. (Other rates remains the same- reverse repo, repo, and bank rate at 3.25%, 4.75%, and 6% respectively). CRR rate hike will be implemented in two phases. The first 50 bps hike will come into effect on February 13 while the next 25 bps hike will be effective  from February 27.
In January Indian market witnessed a record turnover of Rs.1.92 crore. Almost all the stocks are now at lower levels. Decent growth figures will be beneficial for Indian market. Attractive levels always attract good investors and opportunities not always last long.

Debates are on. The RBI policy is clear. Growth is the need of the hour. Inflation was a major concern, and still remains so. But reserve bank of India in it’s monetary policy only hiked CRR rate. The cash reserve ratio will become 5.75% from the present 5 percent. All other key rates repo, reverse repo and bank rates will remain the same.  CRR rate hike will be implemented in two phases. These all shows that growth is the main target. RBI reversed it’s growth forecast to 7.5 percent for the present 6 percent. Which will be an attainable figure. UPA government also made it clear earlier that India will record above seven percent growth rate in 2009-10.
Food inflation was a major concern for the central bank. They now predict that inflation would come down by march. In February end, the full fledged budget by the UPA second will be tabled. Which will be a road map for the country in the path of progress. It seems everyone believes that inflation can be tamed without disturbing growth. As the RBI governor said now we have to look for consistent measures.
On the global front giants like US and China are controlling their banks with tight measures. Recently China increased bank rates also. RBI policy review came on the wake of US presidents remark on outsourcing. As expected he made his stand clear that he is against outsourcing. When outsourcing stops all IT and IteS companies in India will face difficulties. This would adversely affect India’s economic growth. Inflation is the major reason of worry among common man. Government and RBI had taken so many steps to curb inflation but now also it remains untamed.
Indian corporates recorded decent growth figures in the quarters so far. One more quarter is left. It is believed that they would do better in the fourth quarter also. Agricultural sector is the most under performing now. IT and enabled services contributed large to India’s growth story in the past decade. Now a sea change is going to happen in this sector. In the coming budget also it shuld be great concern. Otherwise we will see another wash over in the IT sector.
Indian indices tanked for the past two weeks mainly concerns of RBI policy review. Banking stocks witnesed huge selling pressure due to fear of a rate hike. After the review a big amount of money will be wiped out from the market. Indian market reacted fiercely to the policy changes at first. But then indices bounced back. Experts believe that till union budget there will be volatility in the Indian stock market. In the short term we can expect some buying pressure too. Beaten down banking stock counters are filled.
In short RBI monetary policy aims at consistent growth. It ensures that steps would be taken to tackle fiscal deficit. As feared the RBI policy change was not a bad one. It’s clear that the RBI intention is to maintain a decent growth rate. Coming budget will follow RBI stand on growth.