The Reserve Bank of India's decision to withdraw emergency liquidity support measures and the move to raise provisioning requirements turned on the bears last week (October 26-30, 2009). Notwithstanding a few spells of inspired buying at lower levels, the market ended the week sharply lower with the Sensex going down by over 5%.
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The Apex bank, which raised the statutory liquidity ratio to 25% from the existing 24%, left the CRR, Repo and Reverse Repo rates unchanged. However, the central bank raised inflation projection for March 2010 to 6.5% with an upward bias, from an earlier forecast of 5%.
Global markets exhibited some weakness at times. But the sharp unexpected surge in US GDP growth triggered some hectic buying across global markets on Friday. The Indian market, however, turned in a highly disappointing performance that day with telecom stocks Bharti Airtel and Reliance Communications and the index heavyweight Reliance Industries leading the decline. While telecom stocks tumbled on concerns over loss of revenues due to stiff competition and the raging price-war, Reliance Industries drifted down sharply on a fall in net profit due to lower refining margins.
The latest data from US showed the world's biggest economy at an annualised rate of 3.5% in the July-September 2009 period, beating forecasts of a 3.3% rise and ending a deep slump.
Results from India Inc. have turned out to be more or less in line with expectations so far. With most of the big companies having announced their results, the market will now look for global cues for direction. The market will react to results from State Bank of India, Hindustan Unilever, Hindalco and Reliance Communications, when it re-opens for trading after the extended weekend. Monday is a holiday for the market for Guru Nanak Jayanti.
With the central bank raising provisioning requirements for commercial real estate loans, realty stocks took a hammering last week. Though a few front line stocks in that space managed to regain some lost ground on the final trading session, the sector is likely to remain under pressure in the near term.
With inflation trending higher - it rose 1.51% in the year through 17 October 2009, as compared to an annual rise of 1.21% a week earlier - a section of the market feels interest rates will see a hike in the near future.
Among the key events to look out for next week is the US Federal Reserve meeting that will take place on 3 & 4 November 2009. Any withdrawal of monetary supportive measures or hawkish comments by the Federal Reserve may result in some frenzied selling on Wall Street, which in turn will have a strong impact in other markets as well.
On the domestic front, sales and shipment figures for October 2009 will give some direction to stocks from automobile and cement sectors. Economic reports from US and the rupee's movements against the dollar will set the trend for IT heavyweights.
Foreign institutional investors, who were seen buying heavily for well over six months, have turned net sellers now. More selling from this set of investors will blow the wind out of several midcap and smallcap stocks, which were mostly seen struggling for a better part of last week.
Some beaten down bank and metal stocks may regain some lost ground on bargain hunting and short-covering. But the overall mood is likely to remain very cautious with a slightly negative bias.
