09 Aug ’23 Post Mortem BankNifty + RBI MPC analysis

Banknifty had a perfect W like pattern formed in the 5mts TF. Even though the rally from 13.50 to close was inspiring, it was not as fierce as on Nifty50. The fall of 441pts ~ 0.98% steals the limelight today.

Now was the 380+ pts reversal from the intraday low to close due to the RBI MPC outcome expectation tomorrow?
Some facts to consider.

• The vegetable, fruits, cereal, and rice prices right now are totally overheated. A middle class family of four will outrun their budget. Even a household income of Rs50000 will fall short. More pain if they have 2 school going kids or ageing parents who need medical attention.
  
• The sad thing is, even if RBI hikes the interest rate to control the inflation (which would have resurrected now) - it seldom goes into the control of Vegetable prices.
  
• RBI’s rate hike will only reduce liquidity to the formal sector. The guy who owns a super speciality air conditioned hypermarket that sells tomatoes = YES!. The guy on the roadside selling tomatoes = NO. The small farmer who harvests 20 bags of tomates = NO.
  
• I personally feel a hike of 25bps is overdue, mainly because fuel prices are rising and banks have reported decent quarter results - their balance sheet does not look that stressed out right now. Liquidity is not getting reduced that much and Inflation may hover around the upper band of 6% by the end of this festive season.
  
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I guess the current product & service prices are unaffordable for the lower range of middle-class. The ultra poor get DBT, cash benefits and ration benefits from the Govt. - but the inflation hits them the most. I seriously think the poor people will opt-out from buying vegetables at these prices. The best solution they can pray for right now is a full blown depression.

On the hourly chart, banknifty has managed to stay out of the bearish territory in the 14.15 hourly candle. But the bears have not really lost control - a change in the status quo of RBI will tip the scale in their favor tomorrow. I am going with a 55% neutral and 45% bearish stance for tomorrow.