The Hindu Business Line : CRR hike may not have any negative impact

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CRR hike may not have any negative impact

Jayanta Mallick

Sentiment is yet to turn bullish in the medium-term perspective

Shashi Ashiwal

Looking up?: A file picture showing a passer-by at the BSE building watching the giant screen, tracking the market movement. Market men are keen to know whether the current recovery would sustain –

Central banks do not make predictable moves, if they could help it. But, on a bumpy road now, they hardly have a choice. As predicted in these columns some weeks ago, RBI hiked CRR by 50 basis points, long after trading hours on Thursday but before the long-weekend. It indeed raised the CRR, long before the policy announcement date of April 29.

Will the central bank tinker with official interest rate or touch the repo window on April 29 again? Some market experts would like to believe that RBI might not shock the markets further. But realists felt that a clearer official signal to raise interest rates would not make much of a difference to the markets. Already a softening of demand for credit was visible. Further hardening of rates may only have a marginal impact in the short-term. In any case, a selective rate hike by some banks is on the cards.

On the whole, the equity market is unlikely to react very negatively this week to Thursday’s RBI move. Psychologically, market has prepared itself for a tad higher interest rates in the short-to-medium-term.

A scenario marked by tighter money supply to the corporations and markets has largely been factored in for the next six months-to-a-year. Only bigger-than-apprehended losses or negative news may change the sentiment for the worse.

So far good show

The first set of results has so far been more or less on expected lines. However, market has not turned bullish yet in the medium-term perspective. A kind of circumspection has prompted some players to say: “the glass is half full” instead of saying it is still half empty.

This difference matters in shaping a short-term sentiment. Sections of the retail and trading communities are showing signs of a comeback. Some of the big brokerages, which are learnt to have suffered losses, are back in the game, albeit at a moderate level. Hurt HNIs are taking a fresh guard too.

Prominent Wall Street bankers, present on Dalal Street, seemed to have, however, literally stopped trading on proprietary accounts. Their clients, including certain hedge funds, who did not have to face their shareholders the way a regulated investment outfits do, have largely reduced their local exposures or remained on the sidelines. Some overseas funds, which had planned a presence here, have postponed arrival in the recent months.

New shops

Curiously, however, in the midst of the panic followed by uncertainty in the global and local markets and an apparent resistance to overseas funds flow in the last three months coupled with redemption pressure, some new funds have, of late, set up shops here. According to market intelligence, they have not started their investment activity as yet, but have been making investments in people and infrastructure.

Their assessment seems to be that in the long run to very long run Indian equities are likely to provide one of the best returns globally.

(Responses may be sent to

jayanta_mallick@thehindu.co.in)

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