This week, benchmark indices are likely to move in a narrow range. However, intra-day volatility will rise due to the RBI monetary policy and on settlement of January derivative contracts on January 31.
With the global cues, particularly from the US remaining positive, and global economists painting a rosy picture for the world at the World Economic Forum, the undertone will still remain positive for the stock markets.
The Standard & Poor’s 500 index, which closed above 1,500 for the first time in more than five years on Friday, is just about 4.1 per cent away from its all-time closing high of 1,565.15 on October 9, 2007. It maintained the longest winning streak in eight years, thanks to strong earnings reports. This will have a positive rub-off effect on Indian markets too.
However, the for domestic markets, RBI’s decision will be the key, as there has been a clamour for rate not only from industry captains, but also from the Government.
Central bank is meeting on January 29 for its third quarter review of Monetary Policy 2012-13 that will dictate near trend on the bourses. Most market participants expect the RBI to cut its policy repo rate by 25 basis points on Tuesday to 7.75 per cent. Any positive surprise will herald a fresh momentum to stocks that will help the benchmarks (BSE Sensex and NSE Nifty) to scale new highs.
However, disappointment on rate cuts will affect the Street mood severely. The RBI had last cut rates in April 2012 by 50 basis points but warned at the time there would be limited scope for further cuts. While the RBI policy will set the macro trend, at micro levels, corporate results will continue to drive individual stocks. Some of the key corporate results this week include: Reliance Infrastructure (Jan 28); Sterlite Industries (Jan 29); ICICI Bank, Lupin, Grasim Industries, Punjab National Bank and Siemens (Jan 31); and IDFC, Bharat Heavy Electricals and Bharti Airtel (Feb 1).
Foreign institutional investors will remain invested in Indian markets after the Finance Minister reiterated his reform commitment to global investors in his recent visit to Hong Kong and Singapore.
Bank of America-Merrill Lynch, which hosted a meeting between the Finance Minister and FIIs, debt investors and corporates in Singapore, said: the large attendance at the meeting reflected the fact that India is no longer an “unloved trade”. The Finance Minister “reiterated” his commitment to reforms and liberalisation. “This is in line with our views of a strong market in early 2013 on the back of rate cuts and reforms announcements. The Finance Minister said that the biggest threat he sees to reforms is an unstable Government in 2014. This is in line with our view that politics will be focus for markets from late 2013,” said BofA-ML.