With a slew of events - the Reserve Bank of India's monetary policy review, being the top one among them - scheduled to dictate trends for short term, a hectic week is in the offing for the market when trading resumes on Monday (30 July 2012).
Contrary to expectations of a rate cut announcement, the central bank chose to keep rates unchanged when it unveiled its policy in June 2012. The uncomfortable inflation level was the reason for the apex bank's decision to keep rates unchanged that time, and although the situation has not turned any better this time around, it may well announce a modest cut in policy rates.
In order to boost growth, the central bank may consider some monetary easing on Tuesday. What might prevent the RBI from cutting rates is the fear of a drought following the highly below normal northwest monsoon. The bank's GDP growth forecast and views on inflation will also play a crucial role in dictating the market's trend next week.
Besides the developments on the domestic front, global factors too will continue to impact the market. In the U.S., the Federal Open Market Committee will take a call on interest rates during its meeting on Tuesday and Wednesday. Economic data from the U.S., parts of European and Asian regions will be eyed.
Notwithstanding some positive news that have emerged this month, the economic situation in most parts of Europe remains rather gloomy, with Greece, Spain, Germany and a couple of other European nations still struggling to wriggle out of trouble.
Apart from rate sensitive banking, automobile and realty stocks, shares from capital goods, cement and metal sectors too will see plenty of action next week. While the central bank's decision on rates will impact the rate sensitives, cement and metal stocks will take cues from July shipments and production data. Sales data for July will set the trend for the automobile sector.
Even as key private sector bank stocks found some support last week thanks to impressive results, shares of state-owned banks struggled due to concerns about rising NPAs.
The rupee's movements against the U.S. dollar and the euro, and the progress of the monsoon will also be watched.
It may be a good start for the week with Friday's strong rally on Wall Street setting the trend for the Asian bourses on Monday. A slightly better than expected pace of U.S. economic recovery in the second quarter and some encouraging data from Europe pushed up stock prices in the U.S. and European markets on Friday.