SBI, HDFC cut interest rates

Over the weekend many banks have announced reduction in borrowing rates for various classes of borrowers. We believe it’s a good step taken by the banks & strategy to pass on the benefits of easing policy measures.



We expect this week inflation no to be further down by about 40-40 bps over Dec 06 no taking into a/c the effect of cut in Cenvat (excise duty). Thus we believe the RBI will have more opportunity t cut repo, reverse repo rates & CRR. Consequently the banks are expected to cut PLR (prime lending rates) further in next week to fortnight.



Improving monetary conditions & inflation coming under control will help govt to focus on growth & provide impetus to the falling growth. Hence there is a case for another round of stimulus package from the govt. Mkts is expecting that to come some time in the current week. Till that time euphoria is likely to be built in the mkt. However we remain cautious of the efficacy of any such package & their sustaining effect on mkts.



Political risk



Over the weekend we have seen hardening of Indian govt’s stand on engagement with Pakistan. US has also given a kind of tacit acceptance of India’s stand. Officially India is getting ready for any eventuality.



Our take: We are no experts on this matter therefore it is difficult for us to give any view whether we will go for war against Pakistan or not but we surely understand that this could turn out to be a major event risk in next few days. We would advise investors to protect their portfolio by taking any kind of protection for example you may think of buying of puts.



Global cues:



US president has sanctioned an emergency loan of $ 17.4 bn (bailout package) for the beleaguered auto makers in spite of the fact that it was earlier rejected by the US parliament. We believe this package will probably save these companies at the most for a few months. The danger of their impending failure will remain as an overhang. The US mkts reacted muted to this news.

Asian mkts are mixed trading down around 2%. SGX starter the day on a positive note but soon gave all its gain, now trading flat.



Crude showed wild volatility touching a low of $ 33/bbl intraday.



Our Take: Our mkts are witnessing strong undertone on the back of expectations of a second stimulus package & reduction in interest rates. The euphoria in mkts seems to be built to a large extent leading to some kind of consensus. However this is typical of any bear mkt where we should not misunderstand any such rally as trend reversal. Also remember we are just 3 trading sessions away from expiry of Dec F&O. Though the proactive policy from govt will provide support to this rally we believe the upside is capped so remain cautious while trading as per our technical analyst’s views.