People still use option as an investment tool and not primarily to hedge portfolios. The market is at a very nascent state. It is nothing compared to what you are going to see in future. Reduction of RBI rate is being touted as the only tool to spur industrial growth. RBI and consequently banks are taken to task albeit in an indirect way for not reducing the base rate or the Prime Lending Rate. The ground reality is otherwise. The industry has no appetite for credit as many borrowers are already in debt unable to service existing liability. The only segment that might be benefited from slashing of lending rate is the consumer loan takers. Consumer behaviour is peculiar in India and mere availability of cheap funds may not induce buying. Slashing of lending rate may have some effect only in Home Loan takers. But there is also a huge inventory of unsold apartments in all major cities and refusal to reduce price by the promoters/builders is a big issue.
This is the dilemma of every RBI Governor and he is expected by the Government and the corporate to reduce the interest rates every time. They argue that reducing interest rates spurs growth. But inflation targeting is always on the radar of any central bank governor in the world. Not only that RBI has to manage money supply, interest rates, exchanges rates and keep them all under control and check. It is interesting to browse through “Who moved my interest rate” by Dr. D. Subba Rao, former RBI Governor which makes interesting reading where he beautifully explains the Governors dilemma in managing all these in the economy. The pain is expected to be short-lived because of developments after the market closed lower. The earnings season started off on an inauspicious note marked with intense selling, tracking weak global markets impacted over poor Chinese trade data, fear of US Fed rate hike and Brexit worries.
With National Festival like Diwali to follow people spend their hard money on purchases and the bonus received will go for buying new vehicle or electronic items. After Diwali, the lean period will start and it will be a testing time for RBI and the policy makers to maintain equilibrium.
(The views expressed by the author in the article are his/her own.)
