RBI monetary policy, Q3 earnings to drive markets post budget

Mumbai: As investors adjust to the new taxation regime following the re-introduction of long-term capital gains (LTCG) tax on equity in the Union budget, the markets are expected to shift focus to December quarter earnings and Reserve Bank of India’s (RBI) monetary policy review this week.

According to analysts, the impact of budget on the equity markets over the years appears to have declined, as the government has separated major policy announcements from the budget process.

Vinod Nair, head of research at Geojit Financial Services, said, “LTCG will have a short term impact on the market. But history points out that the budget-led volatility may not extend for long term and focus will change to earnings & other macro developments. Earnings season is picking up pace which is giving a sense to the participants to accumulate as long term prospects remain intact.”

HDFC Securities Ltd said in a note on 1 February that the Union budget could be less relevant after a few weeks, as the focus would again shift to global events, macroeconomics and earnings. “The current valuations are not cheap, and a lot depends on whether corporate earnings will revive enough to justify or expand these valuations,” it added.

Major companies which will announce December quarter earnings this week include State Bank of India, Tata Motors, Mahindra & Mahindra, Lupin, Punjab National Bank, Hero MotoCorp, Eicher Motors, Bharat Heavy Electricals Ltd, Bank of Baroda, Tata Steel, Oil and Natural Gas Corp., Hindustan Petroleum Co. Ltd, Bharat Petroleum Co. Ltd and Coal India.

Motilal Oswal Securities Ltd expects SBI’s loan growth to be muted in the December quarter, while net interest income (NII) is seen increasing 1.6% (quarter-on-quarter) on a low base, as interest reversals may moderate. It said credit cost of SBI may remain elevated in Q3, led by continued stress additions and focus on shoring up provision coverage ratio (PCR). Performance and guidance on asset quality will be key to watch out in SBI’s December quarter performance.

Meanwhile, the central bank is expected to keep key interest rates steady in its credit policy review on Wednesday. According to Mint, out of 15 economists surveyed, 14 expect the central bank to keep the repo rate—the rate at which the central bank infuses liquidity in the banking system—unchanged at 6%. The report said the monetary policy committee (MPC) is likely to highlight upside risks to inflation on higher oil prices and potential of sharper increases in MSP (minimum support price) in fiscal year 2019.

According to Jimeet Modi, founder and chief executive officer, SAMCO Securities, the markets will seek clues from the US markets as to how the bond markets are unfolding and how equities are reacting to such bond market movements. “10-year US bond yields are hovering at yearly highs and if they keep rising, it will seriously dent equities across the world. Indian markets too will follow such signals. The markets are genuinely worried about the high valuations, bigger appetite of the government to suck away money from investors, and tight liquidity conditions in the economy,” he added.livemint