Business
Hopes of rate cut, more rainy days to support equity markets (Market Outlook)
By
Rohit VaidMumbai, Aug 2
A positive bias is expected to
rule the Indian equity markets in the coming week, with investors hoping
for a rate cut by the apex bank, passage of key bills in parliament and
more rainy days ahead, experts said on Sunday.
"The most
important trigger for the markets is the Reserve Bank of India's (RBI)
monetary policy review. A cut in interest rates will restore investors'
confidence and open the flood gates of funds," Devendra Nevgi, chief
executive of ZyFin Advisors, told IANS.
"Even if there is no rate
cut, the knee-jerk reaction will neither be that disappointing nor
long-lasting, as it has also been factored in by the markets."
According
to Nevgi, markets will closely go through the language used by the RBI
Governor in his assessment of the economy to give further cues on the
future of rate cuts.
"The language on the Indian economy, oil
prices, monsoon, inflation and the US rate hike will be closely
monitored as it will give the guidance to future RBI moves," Nevgi
predicted.
The RBI's monetary policy review is scheduled for August 4.
India
Inc. expects a rate cut by the RBI during this review. Indian industry
feels that the upcoming review might be the last chance to cut rates in
this calendar year before inflation spirals up and the US Fed decides on
its own rates in September.
Anand James, co-head, technical
research desk, Geojit BNP Paribas, told IANS that the RBI's views on the
government's draft financial code which proposes to clip its autonomy
will also be closely watched.
The code, if implemented, will
undermine RBI's ability to rein-in inflation. This will also discourage
investors in taking risks in the future as RBI has been viewed by many
as an anchor for financial stability in the country.
Another major trigger, cited James, will be the government's ability to pass key bills during the monsoon session.
"Parliament's
logjam has cast a shadow over the government's future ability to pass
economic reforms. It has also put a question mark over the fate of key
legislation like the GST (goods and services tax) and the land bill,"
James told IANS.
"Thus, it is very important for Parliament to get back into business and end this political logjam."
Dipen
Shah, head of private client group research with Kotak Securities,
pointed out that the markets expect the government to be in a position
to pass the GST bill soon, as the union cabinet has approved a revised
version of the legislation.
"Passage of the bill will be a
positive for the market. Government is making all efforts to pass the
GST Bill in the current session," Shah told IANS.
Meanwhile,
analysts warned that the enormous erosion of investors' wealth in the
Chinese markets, weakening of the rupee, oil and global commodities'
prices might have a negative impact on the markets here.
The
continuous slide in the Chinese markets in the last two months has
eroded nearly 40 percent of the stock value and caused panic. More
importantly, the inability of the Chinese government, fund houses and
brokerage firms to arrest the fall led to global sell-offs.
Investors will be eagerly looking out for more rainy days ahead.
"Markets
will follow the progress of monsoon closely as it would be a key
consideration for the RBI in its rate decision in the upcoming monetary
policy review," Vaibhav Agarwal, vice president and research head at
Angel Broking, told IANS.
"Monsoon has progressed well and the
overall performance might even be above expectations. This will give a
clear indication of a healthy rural demand scenario, crop output and
better rate cut hopes as inflation would be contained due to good
rainfall activity," Agarwal added.
(Rohit Vaid can be contacted at [email protected])