Benchmark indices are expected to see another round of volatility this week partly due to last week’s spillover.
Expectations of a rate cut in the Euro Zone and hint of QE3 from Federal Reserve Chairman Ben Bernanke are also likely contributors to volatility.
The Nifty and the Sensex are likely to go up by about two per cent this week on positive sentiment build-up after the Shome Committee’s recommendation to postpone the implementation of general anti avoidance rules (GAAR). Had GAAR been implemented, many transactions would have been taxed with retrospect effect.
Output
Late pick-up in monsoon is expected to result in better kharif output. However, lingering stalemate in the Parliament could act as a dampener to action on the reforms front.
It would be interesting to see what happens to the HSBC’s India’s purchase manager’s index (PMI) August data expected on September 3.It is an indicator of manufacturing activity and had declined from 55 in June to 52.9 in July. Last week, the Government announced that India's GDP grew at a higher-than-expected 5.5 per cent in the quarter ending June.
FII flows are also expected to be positive this week.
Automobile and cement sectors’ stocks will be in focus on monthly sales data.
The rupee is likely to appreciate and could breach Rs 55 levels to a dollar.
The 10-year G-sec yields are likely to see volatility with a softening bias and expected to remain within the 8.20 per cent and 8.25 per cent range.
Hopes of a rate cut by RBI are still alive among marketmen as inflation is expected to be below seven per cent.
They expect that there is a need to address issues of impending infrastructure investment for stepping up India’s growth potential, which has been dented post-crisis. Fiscal consolidation is also needed to sustain growth and reduce inflation.
Globally, September 6 is the most important day of this week. Marketmen are expecting the European Central Bank to cut rates by 25 basis points.
As a result the Euro could strengthen and move towards $1.2650.
With the Federal Open market Committee slated to meet next week it remains to be seen whether a quantitative easing would be done at all.
Apparently the hint of a QE from the Fed was on concerns of growth in the US labour market coming to a standstill.
Under this backdrop, yield on US 10-year treasury is expected to be range bound between 1.50 per cent and 1.75 per cent levels.
Nymex crude oil futures are expected to appreciate and move towards $99 levels to a barrel.
Finally, Gold is expected to appreciate by about a per cent from last week’s close of $1687.6 to an ounce.