RBI holds the key!

It is a mistake to try to look too far ahead. The chain of destiny can only be grasped one link at a time.
- Sir Winston Churchill

The RBI Governor’s action and words will determine market direction today. Headline WPI inflation for March is along expected lines, with food articles turning costlier. However, core inflation (a key gauge tracked closely by RBI) moderated. This, along with the IIP data could prompt the RBI to go for a token 25 bps cut in the repo rate. With the liquidity situation improving, one doubts if the RBI will cut the CRR.

Overall, the rate cutting cycle is likely to be more calibrated rather than aggressive, as the recovery in growth will at best be modest. At the same time, a number of pressure points continue to lurk in the background. Sticky inflation, weak BoP, high fiscal deficit, fragile currency, unpredictable money flows, policy inaction and global uncertainties are the main risks. The best case scenario is 75-100 bps repo rate cut in FY13.

Key indices are likely to start the session in red. Asian markets are mixed. On Wall Street, the Dow closed up while the Nasdaq ended down. European indices managed slim gains. No major domestic result is due today while a raft of global data will seek some attention.