RBI monetary policy, advance tax numbers to set pace of markets this week
December, 17th 2012
Reserve Bank of India's monetary policy review and advance tax data will provide direction to markets this week. Equities may gain if the central bankBSE 1.86 % decides to ease liquidity or extend a token rate cut in the light of the recent drop in inflationary pressure. Strong advance tax numbers will also help the indices to even out at higher levels, equity analysts said.
"Markets should consolidate at current levels, with an upward bias this week. The uptrend should continue for the next few weeks. Midcap stocks will outperform broader markets over the next few weeks," said Gaurav Dua, head of research, Sharekhan. The Reserve Bank of India officials will meet on Tuesday to take stock of the economic situation in the country.
RBI, in its October review, had kept key policy rates unchanged at 8% citing persistent inflation as the overbearing reason. The wholesale price index (denoting inflation) for November levelled at 7.24%, marking a second consecutive month of downside surprise in inflation. "The consensus view is that RBI may not cut rates this time round; it may come in January. The central bank may resort to easing liquidity by cutting CRR, which again could be viewed positively by the markets," said Dua.
The market will also take cues from advance tax paid by Indian companies on their third quarter earnings. "Equities market is looking good on the back of global liquidity and active interest and support shown by central banks. Expected fall in interest rates will revive investor interest in equities," said Rajesh Iyer, head of products & research, Kotak Wealth Management. Markets will also keep a close watch on the proceedings at the winter session of Parliament.
According to equity analysts, markets may surge if the government agrees to cap FDI investment by foreign insurers at 26% while allowing portfolio investors to own an additional 23% in Indian insurance companies. If global market cues alone are taken, Indian shares should open firm on Monday. Most Asian indices, barring Japan's Nikkei, ended the previous week on a positive note.
The DJIA closed marginally lower on Friday. The Sensex shed 0.5% to end the week at 19,317. In net terms, equity researchers are bullish about short-term markets, with many typifying it as a 'buy-at-dip' market. "Underlying strength is definitely there... This is evident from the good investor response towards recent IPOs and offer-for-sale equity issuances," said Harsha Upadhyaya, senior vice-president & equities head, Kotak MahindraBSE -0.93 % Asset Management.
"If RBI eases its stance on monetary policy, it'll be a big positive for the market. Such a move will give the market some more leg," he added. Analysts expect mid-cap counters to rally over the new few days. Karnataka BankBSE 1.69 %, Pipavav DefenceBSE -0.48 %, McLeod RusselBSE -0.20 %, Oracle Financial ServicesBSE -1.39 %, Gayatri ProjectsBSE -1.36 % and Southern PetrochemicalsBSE 0.31 % are among stocks that are likely to witness action down the week, equity researchers said.