The Reserve Bank of India is withdrawing surplus cash from the banking system as inflation pressures mount. Economists expect the repurchase rate to rise to 5.5% on Wednesday. Foreign investors remain bearish on Indian stocks amid elevated oil prices and rising global bond yields.
The Nifty 50 has fallen for eight straight weeks, its longest losing streak in 25 years, pushing the benchmark below its 200-week moving average. Traders are focused on the upcoming monetary policy decision and the start of earnings season. Tata Consultancy Services results will kick off the Thursday earnings season, with investors watching for signs of a market turnaround.
HDFC Bank shares will be in focus after the RBI approved the appointment of veteran banker Anup Bagchi to lead the lender, ending a closely watched succession process. Asian stocks rose in early Monday trading after a softer US jobs report eased pressure on the Federal Reserve. India's central bank is also grappling with the fallout from a record $133 billion in dollar inflows from overseas Indians via special deposits.
These inflows have left banks awash with cash and pushed overnight rates below the RBI's 5.25% policy rate, effectively making borrowing cheaper than policymakers intend and fueling inflation risks. JPMorgan's Sajid Chinoy said the central bank should aggressively absorb the excess cash to ensure "there is no inadvertent monetary easing." The RBI has already drained more than 1 trillion rupees ($10.4 billion) through bond sales. Currency swaps carried out to reduce surplus liquidity have pushed up the cost for investors and companies to guard against future rupee weakness.
State lenders are poised to narrow the gap with private peers, according to Anand Rathi. Loan growth holds at around 18% to 20%, while strong FCNR inflows have helped deposits grow at a healthy pace. Valuations look reasonable, with stocks trading slightly below long-term averages.
Outlook for engineering research companies is improving as ICICI Securities sees better prospects for firms moving into faster-growing areas.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing