What is mean by #rate cuts by #rbi

#CRR, #SLR, #Repo Rate, #Reverse Repo Rate and their impact on #deposit rate,# loan interest rate Explained.., 

Santa: I have heard recently that #Mr. Rajan has reduced Repo Rate by 50 basis points and everyone is saying that this is good for the market. Loan EMI may also come down. What is this rate cut means actually? I want to understand this. 

Banta: To understand this you first need to know, how does a bank function. 

Santa: Why? 

Banta: Because all these are inter-related. Tell me – what does a bank do? 

Santa: Bank takes money from depositors and gives loan to earn interest. That way they keep everyone happy and make a profit also. 

Banta: Correct, but there are more to it. Let me explain this in a very simplistic way. Bank needs money. Bank can get money from depositors like you and me and also from RBI. But bank also needs to pay certain interest to us and also to RBI. 

Santa: Ok. 

Banta: Let us try to understand first – what happens when we deposit, say, Rs. 100 with a bank. 

Santa: I know that. Bank gives that Rs. 100 to someone who needs a loan. 

Banta: No, it is not that simple. Remember, though bank can earn interest by giving away loans, but it is also very risky. There are many cases of loan defaults. This way banks can put all our money into high risk areas. It has to be protected. 

Santa: How? 

Banta: Ok, RBI has made it mandatory that upon receiving, say, Rs. 100 – banks first have to deposit Rs. 4 with RBI. RBI keeps this Rs. 4 in its current a/c and hence banks do not receive any interest on this money. This is known as Cash Reserve Ratio or CRR, which is currently at 4%. 

Santa: Hmmm, then? 

Banta: RBI has also made it mandatory that upon receiving, say, Rs. 100 – banks need to compulsorily buy central and state govt. securities of Rs. 21.50. Of course banks will earn some interest income here. This is known as Statutory Liquidity Ratio (SLR), which is currently at 21.50%. 

Santa: Ok, so you mean to say that upon receiving Rs. 100, banks can spend only Rs. 74.50 at its own will. 

Banta: Correct. 100 – (4 + 21.50) = 100 – 25.50 = 74.50 

Santa: But you were saying that banks can also borrow from RBI. What interest banks pay to RBI? 

Banta: Before 30th September, banks were paying 8.25% interest to RBI when it borrows money from RBI. Now this rate has been reduced by 50 basis points. So banks now need to pay interest to RBI, if it borrows from RBI, at the rate of 7.75%. This is known as Repo Rate. 

Santa: Can fixed deposit rate be affected by reduction of Repo Rate? 

Banta: Of course. If banks get money from RBI @7.75%, why will banks pay higher interest to you and me? One year FD rate is already revised by many banks and it is equal to or very close to 7.75%. 

Santa: But as now banks are getting money at a cheaper rate, then they should reduce the loan interest rate i.e. passing on the benefits it receives. 

Banta: Correct. They should. And on that hope market is cheering. If companies get loan at a cheaper rate, they will likely to expand their businesses. That will create more jobs, more income and boost the economy. 

Santa: How is inflation linked to this? 

Banta: See, when loan becomes cheaper, people tends to borrow more. That means people will have more money to spend. This will increase the demand for goods, and if supply does not increase to match this demand, then prices will increase. 

Santa: So there is a chance, that inflation may rise also? 

Banta: Well, yes. But inflation depends on many other factors as well, like production (industrial and agricultural), manufacturing, export – import, foreign currency movement etc. So inflation may increase or may not. 

Santa: One last question. Like we deposit our money with banks, can banks also deposit their money with someone? 

Banta: Yes, they can deposit with RBI and earn interest too. This interest is typically 1% less than the repo rate. This rate is known as Reverse Repo Rate. 

Santa: Great! So now I understand CRR, SLR, Repo Rate, Reverse Repo Rate and their impact on deposit rate, loan interest rate and on inflation. Thanks. 

Banta: Welcome!

NIFTY OUTLOOK WITH DOLLAR (USD) NSE

          AS WE SEEN HIGH VOLATILE MARKET FROM FEW DAYS BUT NOW I SUPPOSE THAT MARKET MAY  MOVE UP FOR SOMETIME. BECAUSE IN NIFTY FUTURE AND NIFTY THERE SEEMS NO DIFFERENCE AND IN OPTIONS LAST TWO DAYS PREMIUMS IS WAVE OFF. SO IN MY VIEW THERE ARE THE LEVELS:

NIFTY
BUY : 8260 , SL : 8166 , TGT : 8589 
SELL : 8129, SL : 8215 , TGT : 7817

AS WE SEE THE CLOSING IS ABOVE BUYING LEVEL SO WE ARE IN BUYING LEVELS

USD
 BUY : 64.64 , SL :  64.09 , TGT : 67
SELL : 63.79 , SL :64.35 , TGT : 60.90

AS WE SEE THE CLOSING IS BELOW OUR SELLING LEVEL SO WE ARE IN SELLING LEVELS
  

Medium Term Market View - 30.03.15

Medium Term Market View - 30.03.15 -

“BRACE YOURSELF FOR A SUPER BULL RIDE, 9400/9600 IS READY TO WELCOME NIFTY WITH FIREWORKS" 

 In our last Mid Market view published on 11th March we kept our long term positional bullish view intact which we are maintianing since 5900 levels, but for trading purpose we gave sl of 8650 and below that advised shorts also which we exited later in some loss due to extreme volatility in market on back of various news flows and since then we were waiting for another safe opportunity to enter again.

 After breaking below 8650 Nifty corrected smartly and quite fast too to the levels of 8270, proving our decision 100% right to exit below 8650 so that we can enter longs again at safe levels.

 From it’s All time high of 9120 Nifty witnessed it’s first meaningful correction of current bull run by correcting almost 10% to 8270 in just 17 trading session.

 Now What Next ? 😐

Are we near bottom ? 

Is there more correction left ?

Is Bull run over ?

 Let us give answer for above questions in one line - “BRACE YOURSELF FOR A SUPER BULL RIDE, 9400/9600 READY TO WELCOME NIFTY WITH FIREWORKS” 

As per our analysis Nifty has corrected 100% inline with our view and corrected enough to the levels where one should feel more comfortable in going long.

 Immediate important support for Nifty is 8250, and below this 8100-8050 which is a major major support zone.

 So from here Add longs in any dip towards 8260-8280 zone (We have already added longs @ 8350 & 8290 on Friday).

 Traders can keep sl in current long trade @ 8240, 

 Positional traders may keep without any sl and use every dip to add longs as per given levels below.

 If in case Nifty breaks below 8240 then it can slip a bit more towards 8100-8150 levels, which will be very good levels to add longs again,

 So below 8240 add long again @ 8100-8150 zone.

 In worst case Nifty may see max 8050-8100 levels not more than that and that too has very low probability according to us, 

 Hence We will keep our sl @ close below 8050 for positional Nifty long.

 On upside major resistance now stands @ 8600-8650 and break above this level should give Nifty more comfort to move upwards safely towards our target.

 Above 8650 important resistance comes @ 8875-8900.

 Our immediate target for Nifty long is 8600-8650 and then 8875-8900, positional target @ 9400/9600.

 On longer term as earlier we maintain our bullish view which we are keeping since levels of 5900-6000, investors should use any significant dip to add value stocks in their portfolio.

 Nifty Short Term Key Supports - 8250/8170/8100/8050

 Nifty Short Term Key Resistance - 8400/8600-8650/8875-8900/9120.

 Our Market view has been 99% accurate since we started posting it and continue to deliver amazing gains for our followers. 

 Overall conclusion is Just Buy Nifty and hold, and remember -

“Why to fear, When time to Cheer"

 ALL LEVELS ARE  TO SPOT.

Did Coal India’s share divestment trigger the stock market fall on Friday?

Did Coal India’s share divestment trigger the stock market fall on Friday?

Before an answer to the question can be attempted, let us look at some facts and figures.

The government had offerred to divest 5% of its equity holding at a ‘floor price’ of Rs 358, with a 5% ‘greenshoe’ option. What that means in plain English is that in case of an oversubscription, the government would part with a total of 10% of its equity holding.

As per reports, there was an oversubscription. That also means the offer price may be a little higher than the floor price.

The total amount likely to be realised from the share divestment is a huge Rs 24000 Crores – which is more than 50% higher than the amount realised from Coal India’s IPO back in Oct ‘10.

FIIs put in bids worth a reported Rs 5400 Crores. That is about the size of their net investment in equities in an average month. Since FIIs were net sellers of equity yesterday, it is fair to conclude that some of them booked profits in the secondary market to invest in Coal India’s offer.

That leaves a balance of more than Rs 18000 Crores, which must have been invested by DIIs and individual investors. DIIs were also net sellers of equity on Friday. Some of them must also have booked profits in the secondary market to finance their investment in Coal India’s offer.

So, the obvious answer to the question is a qualified ‘Yes’. Why qualified?

Because stock markets don’t fall on facts alone. They also fall on expectations of future events. As per a recent article in Business Standard, in the pipeline are divestments from ONGC worth Rs 15000 Crores, and HDFC Bank worth Rs 10000 Crores. Both offers are going to receive enthusiastic support from investors of all hues. There are smaller offers from PFC (Rs 1900 Crores) and REC (Rs 1600 Crores) that are awaiting government’s nod.

To top it all, a few PSU banks came out with disappointing Q3 results. Since the stock market was at a lifetime high after a 10 day rally that pushed technical indicators into their overbought zones, the stage was ideally set for a correction.

Putting matters into perspective, Sensex and Nifty corrected by about 2% from their lifetime highs touched yesterday, and closed marginally lower for the week. Some more correction may be on the cards till the overhang of share divestments is dissipated. The dip can be used to add to fundamentally strong stocks in your portfolios.

That was the long answer. The short answer is: Yes