RBI Keeps Repo Rate Unchanged, Stance Accommodative; Nifty Scales New High

Nifty, +2.2%; Sensex, +2.1%; Nifty Midcap, +2.5%; Nifty Smallcap, +1.9%; Model Portfolio, +1.5%.

Market status: Confirmed Uptrend

Distribution Day Count: Two

Weekly Market Review

Nifty closed in positive territory on all four sessions of the week. It made a new high today and closed in the top quartile of the day’s range. Today’s gain was led by Nifty Bank (+2%). Also, Nifty Metal (+1.2%), Pharma (+1.2%), and FMCG (+1.4%) pushed Nifty higher. Nifty Midcap and Smallcap indices took breather and underperformed the benchmark indices. Nifty is trading 3.5% and 9.5% above its 21- and 50-DMA, respectively. On the sectoral front, Nifty PSU Bank, Realty, and Metal closed 8–9% higher for the week. Nifty Auto, Energy, and Pharma closed 4–5% higher, while Nifty IT and FMCG also gained 2.5% and 2%, respectively.

Today, the RBI’s MPC unanimously decided to keep the repo rate unchanged at 4% and continues to maintain its accommodative stance as long as necessary to revive growth. Reverse repo rate remains unchanged at 3.35%. Marginal standing facility and bank rate remain unchanged at 4.2%. India’s GDP is expected to contract 7.5% in FY21 due to the economic disruptions caused by the COVID-19 outbreak, however, the projected number has seen improvement against the earlier projected contraction of 9.5% due to the economic recovery. Further, RBI foresees positive growth in H2. Q3 FY21 growth is seen at 0.1% and Q4 FY22 at 0.7%.

We maintain a positive view of the overall market as indices trend into new highs with low distribution day count. Further, leadership remains widespread across multiple sectors. We continue to recommend a selective approach to increase risk. Focus on high-quality ideas emerging from sound bases with an RS line at or near a new high. After a strong rally, pullback/consolidation (if any) is a constructive sign if Nifty holds its short-term moving averages. On the flip side, tracking distribution days is crucial. Accumulation of distribution days can be a sign of market top and halt the uptrend.