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Business

Global risks and domestic rates to steer markets (Market Outlook)

Mumbai, Oct 2 

Indias monetary policy announcement, along with key economic data and the subsequent flows of foreign funds, are expected to set the tone for the Indian equity markets during the upcoming week.

According to market observers, investors' sentiments will be heavily influenced by cues on increased tensions between India and Pakistan, Deutsche Bank fines and global crude oil prices.

"Markets next week would be driven by global risk-aversion, primarily Duetche Bank stock price and oil prices," Devendra Nevgi, Chief Executive of ZyFin Advisors, told IANS.

"The uncertainty driven by the fear of escalation of the India Pakistan conflict would keep the markets volatile, especially the illiquid mid/small cap stocks. Though in the past after the Kargil conflict and Indian Parliament attack, the markets did rebound after the initial knee-jerk fall."

Another major event -- the Reserve Bank of India's (RBI) upcoming fourth bi-monthly monetary policy review slated for October 4 will be keenly watched by the market participants.

"Markets would look forward to the new RBI Governor's stance on policy rates, inflation and foreign exchange (rates), growth as well as banks' stressed assets situation," Nevgi said.

The fourth bi-monthly monetary policy review will be the first to be decided on the recommendations of the newly formed Monetary Policy Committee (MPC). The committee will meet on October 3 and 4 for the review.

This will also be the first monetary policy review for the newly-appointed RBI Governor Urjit Patel.

"Market participants are eagerly waiting to hear from the newly-appointed governor Dr Patel for the first time after he took charge on September 6," said D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors.

Patel's elevation as RBI Governor has raised expectations among those who were critical of his predecessor Governor Raghuram Rajan for not easing the monetary policy.

"The (RBI) meet shall be watched with interest, this being the first for the new governor and the newly-inducted monetary policy committee," said Anand James, Chief Market Strategist, Geojit BNP Paribas Financial Services.

"Markets should take a while in gauging what to expect of the new regime."

James noted that upcoming US jobs data would see investors recalibrate their December rate hike expectations.

A rate-hike in December can potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India, and is also expected to dent business margins as access to capital from the US will become expensive.

Besides, the upcoming second quarter (Q2) earning results season will be another major consideration for investors.

"The upcoming earnings season will be watched closely as markets PE (price-earnings) ratios remain higher than the historical averages and recent advances in the market levels," Nevgi said.

According to Dhruv Desai, Director and Chief Operating Officer of Tradebulls, Indian equity markets would be volatile due to profit-booking at higher levels in coming sessions.

"Auto and textile sector stocks are likely to witness lower levels of buying next week tracking strong fundamentals," Desai said.

"Investors will closely follow the important cues like FIIs (Foreign Institutional Investors) fund inflow in the Indian equity markets and the market's strength to recover from lower levels."

Last week's provisional figures from the stock exchanges showed an appreciable inflow of Rs 2,096.73 crore in foreign funds.

Figures from the National Securities Depository (NSDL) disclosed that FPIs were net buyers of equities worth Rs 10,683.63 crore, or $1.60 billion, from September 26 to 30.

For the week ended September 30, escalation of tensions between India and Pakistan, coupled with negative global cues and derivatives expiry had plunged the Indian equity markets.

The 30-scrip sensitive index (Sensex) of the BSE closed the week's trade with a substantial loss of 802.26 points, or 2.8 per cent, to 27,865.96 points.

Similarly, the 51-scrip Nifty of the National Stock Exchange (NSE) receded by 220.4 points, or 2.5 per cent, to 8,611.15 points.

(Rohit Vaid can be contacted at [email protected])