With last Friday's record 5 year low WPI inflation coming in at an astounding
With last Friday’s record 5 year low WPI inflation coming in at an astounding 1.77% m/m, coupled with a better than expected Balance of Trade figure in October that beat September’s Balance of Trade by almost a $1 billion, markets roared to an all time Sensex close of 28,177, at one time hitting 28,205. This was a pivotal day as bullish investors pushed the Sensex past the important resistance point of 28,000, which the Sensex was unable to penetrate since the start of the month.
The surge was also prompted by State Bank of India reporting better quality assets, which seemed to contradict the news reported on Friday which showed that it missed analysts’ expectations on its 2nd quarter profits due to a slowdown of loan growth and rising bad loan provisions. The news of higher quality assets pushed the stock 5.44% as investors seem keen on holding on to the belief that the bank’s strategy of cutting costs and managing its loans will suffice, despite not meeting profit expectations pinned by analysts.
The curious question now comes to the RBI on whether or not it will cut the headline repo rate in the near future. With confirmation of low inflation in place, it would require a severe stance by RBI Governor Raghuram Rajan to convince the public that a rate cut is not warranted.
By Raghu Kumar, Cofounder RKSV