The resurgence of crude oil prices is likely to play on investor sentiment and will be the key factor to watch out for in the near term that will set the market trend, say marketmen. With the August series derivatives contract expiry due next week, equities are expected to remain in a consolidation mode.
Meanwhile, investors also await the verdict on the ongoing 45-nation Nuclear Suppliers Group meeting to consider whether to allow India to have civil nuclear cooperation with the international community. Any positive outcome from the meet could help fathom the hurdle on the impending India-US nuclear deal, and in turn, boost market sentiment.
On the inflation front, experts feel that the wholesale price index is expected to march northward, but will eventually soften in the next 3-4 months. "Inflation will show a rising trend for the next four to six weeks, but after that it will plateau," said DD Sharma, senior vice president at Anand Rathi Securities.
Data released after market hours on Thursday showed India's annual inflation in the week to Aug 9 at 12.63 percent, e in 1995, and analysts said the rate could top 14 per cent. This also raises expectations of further monetary tightening by the Reserve Bank of India, thus elevating the possibility of higher borrowing costs.
The other risk for the equity market will be any further spike in crude oil prices. Crude prices have jumped 6.5 per cent this week on escalating tensions between the United States and Russia. The surge knocked the US dollar and dragged other Asian markets to a two-year low on Friday.
However, Anand Rathi's Sharma does not foresee much downside for the market going forward. "Domestic institutional players are expected to accumulate positions after the recent weakness in the market, which is why we feel the downside is limited from hereon," he said.
On Friday, Indian shares rebounded more than 1 per cent on Friday as investors picked up beaten down stocks after a sharp fall in the previous session. The market also looks forward to Indian and US GDP data scheduled to be announced next week.
"On Aug 29, Indian GDP data for Q1FY09 will be released. This is a figure market is waiting anxiously for. Next week will be a tough one especially for the banking sector. Bounce back in crude prices is expected to continue and it may impact bank stocks," said Praveen Kumar, an analyst with large brokerage.
Conforming to the forecast of Prime Minister's Economic Advisory Council and other economists, NCAER has also projected moderation in economic growth at 7.8 per cent for the current fiscal, from the earlier estimate of 8.8 per cent.
"On Aug 28, US GDP preliminary data will be released. Advance estimates are indicating US economy to grow 1.9% annualized rate. If the actual figure comes in line with the preliminary estimate then it would mean recessionary fears are over and the Federal Reserve can concentrate on inflation fighting and we can expect rate hikes in US," Kumar added.