The Indian bourses are expecting a Repo Rate cut. 

The RBI's Decision to Halt Short - term Inflation Predictions: A Positive Shift.

To begin with, you must have observed that the Reserve Bank of India (RBI) has halted short - term inflation forecasting as of August 2023. This decision is a welcome change, given the inherent challenges of accurately predicting inflation over an extended period, especially in a volatile economy like India’s. Besides, it also encouraged hoarding of commodities, in case of higher inflation projections and vice versa; leading to the distortion of economic parameters. Moreover, unpredictable global economic factors have also made such projections less reliable and potentially misleading. Photo (edited): Business Standard.

Now coming to domestic bourses: we have witnessed another round of a broad sell-off today, cutting across sectors. Even resilient stocks like NBCC weren’t spared. The stocks like Zee Entertainment Enterprises Ltd (Rs.126.21) fell, even though the company came out with good Q1FY25 results. The stock of SAIL (Rs.126.46) fell, even though we are at the end of monsoon season and the steel demand is likely to push up in the near future. Fundamental play has gone down the drain and scrips having P/Es above 100 continues to show upward momentum.

Meanwhile, in a disturbing trend, the stock of Vodafone Idea Ltd (Rs.9.77) continues to hit new lows every day, with no clear cut direction coming either from the government or from the analysts community who were till a couple of months back were giving wild targets, as high as Rs.34. 

However, the manipulated stocks, quietly promoted through various private messaging groups, like Whatsapp and Telegram, managed to defy the trend and stay afloat.

The market is FULLY MANIPULATED and most retail investors continued their habit of chasing speeding horses, instead of trying to ride a steady horse; which is expected to give a long run in the future.

Interestingly, while Indian stock markets anticipate a rate cut from the RBI, the central bank finds itself in a tough spot. Inflation, particularly driven by food prices, remain high, and several research agencies have trimmed down India’s growth forecasts. There has been a continuous uptrend in the food prices during the last few months, but little did the NDA government do, in terms of policy tweakings to contain such moves.

It is true that monetary policy measures are needed to balance the inflation - growth conundrum, but on the flip side the government should also take some effective measures to add more teeth to such policies. Otherwise, unwanted disruptions in the economy might continue.

It’s worth noting that economics isn’t an exact science, especially when predicting long-term human behavior, and ironically much of the data used in inflation models are derived from Western economies, which don’t always reflect India’s unique consumption patterns.

On the brighter side, by stopping these long-term inflation predictions, the RBI is moving toward a more dynamic and adaptive approach. As I’ve mentioned in my previous blog posts, I’ve long advocated for ending this practice, and it’s encouraging to see this disruptive habit has at last been put to rest.

Happy Investing!