The Indian stock market is seen subdued next week, after the key indices breached crucial levels Friday. A curtailed trading week will also make investors wary of taking positions, even at lower levels.
Mayank Shah, CEO of Anagram Capital, expects the markets to be range bound and move in 100-point range. With the US dollar showing strength, evident from the rise in dollar index to 78, he expects reversal of dollar carry trades due to which there will be outflow of money to the US by overseas funds.
The BSE Sensex ended Fridays session at 16,719.83, down 174.42 points or 1.03 per cent from the previous close. On a weekly basis, the 30-share index lost 399.20 points or 2.33 per cent from the 17,119 level.
NSEs broader Nifty closed below the 5K mark at 4987.70 on Friday, losing 129.6 points or 2.53 per cent week on week from Dec 11 close of 5117.30.
The week saw rate sensitive stocks take a drubbing on fears that the Reserve Bank of India may increase the CRR from the current 5 per cent and follow up with rate hikes.
In fact, RBI Governor Subbarao is scheduled to meet Finance Minister Pranab Mukherjee later Friday amid talk of monetary tightening to help stem rising prices. The meeting comes ahead of the review of its monetary policy at the end of January.
DD Sharma, Senior Vice President Research, Anand Rathi Securities, said, The continued spike in inflation with sharp rise in food inflation (to 19.95% for week ended Dec 5) is making the market nervous about some kind of panic measures being taken by the government on the monetary side. There is a possibility that the RBI may allow the rupee to appreciate if dollar inflows gather momentum, to allow cheap imports and also to enable more inflows which are needed to boost growth.
He added that, global equities are under pressure due to gaining strength in dollar and this may affect sentiments in domestic markets. Any sustained fall in global equities could trigger major correction in domestic equities. One should watch the 4980 level on Nifty for indication of short to medium term correction. Long position holders can buy Puts of 4900 for hedging purpose. Others can lighten the position if Nifty closes below 4980 levels.
Anagram Capitals Shah also shared similar views. He expects the government to start withdrawing the stimulus measures introduced when the Indian economy was bearing the brunt of world recession.
Earlier Friday, Asian stocks fell on worries that banks will have to raise more funds after the Basel Committee on Banking Supervision said lenders should increase the quality of capital they hold by 2012. Adding to the already frayed sentiments, Fitch Ratings said the capital strength of Chinese banks is likely more strained than it seems.
On the bright side, European stocks rose for the second week in a month, as German business confidence climbed more than estimated in December to 94.7 from 93.9 in November. This is the highest in 17 months, following a revival in exports and manufacturing growth tracking a global recovery.
The Indian market will remain closed on Friday for Christmas.