11th March: Creating liquidity by 75bps cut

The RBI cut the cash reserve ratio, the share of deposits banks must hold with the central bank, by 75 basis points to 4.75 percent,effective Saturday.The RBI's mid-quarter policy review is scheduled for Thursday, andmarket watchers had widely expected it to cut the CRR by 50 basis points then. The central bank is expected to begin cutting interest rates in coming months as both economic growth and inflation slow, but few in the market expect it to do so as soon as next week. The cut will inject about 480 billion rupees of liquidity into the banking system, which the RBI said had been on track for a worsening liquidity deficit in the second week of March, partly because of advance tax outflows

The Finance Minister will present the FY2012-13 budget in the backdrop of a sharp rise in the fiscal deficit for 2011-12. Interest rates have risen sharply in FY12 and budget provisions are expected to largely determine future monetary actions.

Budget expectation:
= The FM's priority in the 2012-13 budget will be fiscal rectitude

= The budget will aim to provide an investment – led supply push to growth as against a consumption.

= Expectation that the FM to target greater fiscal discipline. The target for fiscal deficit for FY12-13 is expected to be set at 5.02% on a nominal GDP growth of 13%. We expect increase in indirect tax rates (excise, service tax).

= Expectation of divestment target to be set at around the FY2011-12 levels of Rs.400bn.

= FM should invite more private participation by giving incentives for investments in targeted a

= On reforms, the FM may signal the Government's intention to move ahead with the reforms process on several fronts. DTC and GST are expected to be implemented WEF FY14 now.

= The budget may take some of them ahead - FDI in multi-brand retail, Companies Bill, Competition Bill, Mining Bill, Banking Regulation Act, Power sector reforms, etc.

= Changes in taxation of transactions in a globalized environment are also expected.

= Critical issues like labour reforms, pension reforms, etc may need broader political consensus.

= As far as tax measures are concerned, we expect the FM to roll back the stimulus provided earlier. Thus, I expect excise and service tax rates to increase by 200bps to 12%; a step towards GST.

I do not expect any major initiatives for the stock markets. Any reduction in STT will be cheered by the markets.

I believe that, the budget may have:
Positive implications for Banking, NBFCs, Capital Goods, Cement, Construction, Logistics, Media, Oil & Gas, Power, Shipping sectors; Negative implications for Automobile sector and Neutral for sectors like Aviation, FMCG, Hotels, Information Technology, Metals & Mining, Real Estate,Telecom.

Technical Analysis on Indian markets:
On Friday Nifty and Sensex closed with a biggest rally in 9 weeks. Sensex closed up with a gain of more than 2.% or 358 points supported by 23 stocks. Meanwhile, the NSE benchmark gained 113.10 points or 2.17% at 5,333.55.

Indian markets have closed negatively for the third consecutive week. Nifty closed down 25 points of 0.48% down on week on week basis. Nifty closed at 5333.55 for the week. Nifty which has scaled up to 5600 levels three week back have corrected and closed down to5333 levels. Nifty have always faced selling pressure at 5600 levels. Sensex lost 134 points or 0.76% to close at 17503 levels. Sensex made a high of 18500 levels lost nearly 1000 points in 3 weeks.

Moving ahead is the election week. Movements will be decided after the special day. Mean while Nifty will continue to find resistance at 5600 and support at 5200 levels in a broad range. On Wednesday Nifty tanked down below 5200 levels but closed at 5220 levels. Nifty had taken good support at its 200 DMA and bounced back. CRR cut news fired the rally and Nifty closed at 5333 levels. But still the 5200 levels will remain a solid support. Close below the same will take the nifty to 5050 levels. Moving past 5600 levels seems to be a bit difficult as of now. I still remain spectical that Nifty will close above 5600 levels.

50DMA is all set to cross over the 200 DMA, that will also trigger some buying spear. FII for the first time since the start of the year, were net sellers in the equity market on Wednesday. But the way they have bought on Friday, it seems that they are no mode to sell in the Indian markets. Any negative news in the budget can surely set the FII’s on fire, and they can come out to sell. Panic situation will be there in the market. It is advised not to trade in the market for a week. The mode will be set after the SPECIAL DAY.