Today is the monetary policy day. Lot of domestic cues to watch out for as the Govt cuts the excise duty on Petrol and Diesel prices by 2 rupees each. That adds to another 50 paise cut by IOC on VAT and that makes the total cut of about 2.50 rupees on Petrol and 2.25 rupees on diesel.

What is the implication on it?

It’s a 13,000 Cr loss for the Govt. Already spectrum fee has come down, Govt got a 70,000 Cr less from RBI and it adds a huge pressure on fiscal deficit figures. We have committed to 3.2% Fiscal deficit for this year which is now looking impossible. This might now be at 3.6-3.7% which means we are in for another miss economically. All this will surely have some long term impact on NIFTY.

In that backdrop of all this, will RBI go for a rate cut?

The reduction in petrol prices might cut inflation by 10-15 basis points but the loose fiscal scenario might caution the RBI from going for any rate cut. The Govt by cutting the excise duty has given a message to RBI that rate cuts are important for triggering the growth. Will RBI take the cues and cuts the rates needs to be seen.
If you ask me personally, this is the toughest time for RBI to give a rate cut now. Reason is, after a loose fiscal scenario we can’t have a monetary mess staring at us. We have now gone to a situation where giving a rate cut itself might be a cause of concern. This is the mess we are in now. So the RBI will have a tough time taking a decision today. A 25 bps rate cut will be a welcome sign. 50bps is a pleasant surprise and no rate cut is the expected scenario. Lets see what happens at 2.30!

What will happen to NIFTY today?

NIFTY will open flat at around 9850 levels and might remain in 9830-9880 levels till RBI policy. The Policy might take NIFTY at best to 9920 if the policy comes in favour of market or drop to 9800 if the news is negative. Anyways close becomes important. The close above 9850 will mean status quo, close above 9900 will be positive and we can expect a 10,000 diwali. A close around 9800 means more pain is in store. Everything depends on RBI policy and if you ask me I would say we could go mildly up around 9900 levels and close there. Take positions accordingly.