Mumbai, Dec 4

The upcoming monetary policy review of the central bank, combined with fluctuations in rupee value and the flow of foreign funds will drive investors\' sentiments in the equities markets.

Other major themes for the trade week starting December 5 will be the movement of global crude oil prices, along with cues on the US Federal Open Market Committee\'s (FOMC) rate setting meet and future of India\'s further reforms after the demonetisation move.

\"Rate decisions will lead the week\'s headlines, with RBI (Reserve Bank of India) and ECB (European Central Bank) announcements scheduled on December 7 and 8, respectively, and that of FOMC and BoE (Bank of England) in the week after,\" Anand James, Chief Market Strategist, Geojit BNP Paribas Financial Services, told IANS.

Market watchers observed that investors will focus on the RBI\'s next policy meet, as they expect a minimum of 25 basis point (BPS) cut in key lending rates.

\"Next week would bring RBI policy meeting in focus. RBI has been fairly active in liquidity management (absorption) after the demonetisation move by government,\" Devendra Nevgi, Chief Executive of Zyfin Advisors, told IANS.

\"RBI is widely expected to cut repo rate by at least 25 bps, with growth expected to be weaker due to the cash crunch as indicated by recent GVA (gross value added) growth numbers and inflation remaining benign.\"

\"The risks to this view comes from a weaker INR, higher crude prices and higher yields on US treasuries.\"

According to D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors, the recent inflation data has shown that the central bank will get enough room to reduce benchmark interest rates in its upcoming meeting.

India\'s annual retail inflation eased in October to 4.2 per cent from 4.39 per cent in September and 5 per cent reported during the corresponding period last year, while wholesale prices fell marginally to 3.39 per cent.

Apart from the upcoming monetary policy decision, the tone for the week ahead will also be set by the market-response to last Friday\'s US non-farm payrolls data, and the rate hike trajectory it suggests.

The reaction to the robust US macro-statistics on non-farm payrolls data, especially given the impending rate hike scenario in December, will be a major theme for the coming week.

The \'US Bureau of Labor Statistics\' reported that the total non-farm payroll employment increased by 178,000 last month, whereas the unemployment rate declined to 4.6 per cent.

The higher-than-expected data assumes significance as it builds up a case for the start of next round of US rate-hike cycle expected this month.

A hike in the US interest rates can potentially lead Foreign Portfolio Investors (FPIs) away from emerging markets such as India.

\"Markets would continue to be choppy reacting to global and domestic events as it digests impact of the demonitisation and uncertainty surrounding it,\" Nevgi said.

Even the outcome of Italy\'s constitutional referendum which will decide, if the country remains in the Eurozone or not will impact investors\' sentiments.

\"Indian equity markets are likely to be volatile due to short covering and value buying at lower levels. Stock specific price movement can be seen in the equity markets during next week,\" said Dhruv Desai, Director and Chief Operating Officer of Tradebulls.

As per Desai, the pace of FIIs\' (Foreign Institutional Investors) fund inflow into equity segment will be a crucial determining factor for the movement of key indices.

The provisional figures from the stock exchanges showed a huge outflow of Rs 3,179.26 crore during the week ended December 2.

Figures from the National Securities Depository (NSDL) disclosed that foreign portfolio investors (FPIs) were net sellers of equities worth Rs 3,242.33 crore, or $472.59 million from November 28 to December 2.

\"Markets would look forward to the DII (Domestic Institutional Investors) flows support, with FPI\'s remaining net sellers, in line with EM (emerging markets) outflows. Markets would be more stock specific,\" Nevgi added.

Sector-wise, experts predict that banking stocks could witness continued volatility as RBI fine tunes measures to ensure financial stability.

\"Besides other sector, the banking stocks will be keenly watched by the investors and it is expected that Bank Nifty would move in the range of 18,000-18,600 levels,\" Aggarwal explained.

\"Meanwhile, Nifty is expected between 8,000-8,250 levels.\"

Last week, Indian equities markets ceded their initial gains due to concerns over upcoming global events and profit booking.

The barometer 30-scrip sensitive index (Sensex) of the BSE slipped by 85.68 points or 0.33 per cent to 26,230.66 points.

The wider 51-scrip Nifty of the National Stock Exchange (NSE) closed at 8,086.80 points -- up only 11.15 points or 0.14 per cent.

(Rohit Vaid can be contacted at rohit.v@ians.in)

Rate, rupee, reforms to drive equity markets (Market Outlook)