Fed Tapering and RBI Policy, September 17, 2013 | Stocks and Commodities

P R Sundar, Aditya Trading Solutions

September 17, 2013
Time: 6 pm

Fed Tapering:

1. We will discuss possible outcomes of FOMC meeting and RBI policy and the corresponding effect in our stock markets.
2. Between last FOMC meeting and current meeting, the macro economic data from US have not been that good for FED to go for big cuts.
3. Emerging economies have requested the FED to go slow so that their currency and stocks will not come under severe pressure.
4. But at the same time, QE3 has not been effective in increasing economic growth, instead it aided only financial markets.
5. There are three possible scenarios.
6. One: Fed may delay the tapering to the end of the year and may announce specifically how much it would reduce. This will be a very big positive for stock markets all over the world, particularly emerging markets like India.
7. But this possibility is very low. But no one can guess what FED would do. 
8. Second: Fed may start tapering from September. It may reduce the bond buying program by 10 billion a month. This will be a neutral news for markets as this possibility has already been priced into the markets. However knee jerk reaction on the downside is not ruled out. But the fall will be limited. 
9. Third: Fed may reduce the bond buying program by 15 to 20 billion a month. This will be negative to the market. There will be 5 to 10% fall in all emerging markets. This possibility is also very low.
10. Second possibility is very high and hence the FED news will be more or less neutral news for markets.

RBI Policy:

1.  RBI policy date has been postponed to 20th September from 17th September intentionally in order to tweak the policy as per the outcome of FOMC meeting.
2. Here again there are three possibilities.
3. One: RBI may cut rates by 25 basis points just in order to boost the sentiment. This will be very positive for stock markets and banking stocks will shoot up as they are still oversold.
4. But this possibility is very less as inflation is still too high.
5. Second: RBI may keep the rates unchanged, but announce some other liquidity measures like 'Funding for lending' where RBI may refinance for certain loans like auto loans and housing loans at a cheaper rates to banks. RBI may give some road map to attract more dollars, etc.
6. This possibility is very high. The stocks will react positively sector wise, like banking, auto and real estate shares doing well.
7. Third: RBI keeps the policy rates unchanged and do nothing else. This will be very negative for the markets. Again this possibility is very low.