After posting some solid gains over the past couple of weeks, the Indian stock market may well see a bit of consolidation in the coming week - a truncated one due to a holiday on Wednesday (August 15) for Independence Day - with investors most likely to tread cautiously amid a slew of economic and earnings data.
The Reserve Bank of India, while unveiling its monetary policy review late last month, left key policy rates unchanged, citing inflationary pressures. The data released from the government last week showed a contraction in industrial growth. The southwest monsoon has been well below normal this time. Despite all these, the market has gained in some strength, due largely to hectic buying by foreign institutional investors.
The finance minister P Chidambaram's comments that the government will initiate steps to attain fiscal consolidation and work with the central bank to tame inflation appear to have lifted investor sentiment to an extent. But then, it is too early to expect that the government will come out with any significanty concrete measures in the very near future.
Some top notch companies, including Tata Steel, Hindalco, Coal India, Reliance Infrastructure and IDFC, will come out with their quarterly earnings reports during the course of next week.
The data on inflation will be released on Tuesday. The wholesale price index was up 7.25% in June (provisional), and, according to estimates, may have edged up a bit in July. The government will also release data on consumer price index next week.
According to the Indian Meteorological Department, rainfall, which was 19% lower than the long term average till July, will be normal this month.
Besides quarterly results from India Inc and domestic ecomomic data, economic news from the U.S., Europe and China will also make a significant impact on price movements. Data out of the U.S. and China turned out to be quite disappointing last week and if more bad news emerge out from these regions, the market may well see some strong rounds of selling in the near term.
The rating downgrades on some top notch Indian stocks and the sovereign debts of some European nations are among the negatives investors will have to digest. Despite all these, the market could see some rallies, but then, with the near term global economic outlook still remaining uncertain, it may well find it difficult to sustain at higher levels for long.