Week Ahead: RBI's rate decision to set the trend

Last Updated: Sun, Jun 16, 2013 07:18 hrs

Hopes of a rate cut from the central bank following a notable drop in wholesale price inflation lifted stocks on the Indian bourses on the final session of the week ended 14 June 2013. Some mixed economic data from the U.S., and a mostly negative trend in global markets had rendered the mood a bit bearish for a better part of the first four sessions last week.

In the forthcoming week, the market's fortunes will largely depend on the Reserve Bank of India's take on interest rates. The apex bank, which will unveil its mid-quarter monetary policy review on Monday (17 June), is widely expected to cut the repo rate by 25 basis points.

While stating its policy in early May this year, the central bank had cut the repo rate by 25 basis points even as it left the CRR unchaned at 4%. The bank said then that the balance of risks stemming from its assessment of the growth-inflation dynamic provided little space for further monetary easing. The RBI, however, said it will endeavour to condition the evolution of inflation to a level of 5% by March 2014, using all instruments at its command.

Shares from rate sensitive banking, automobile and realty sectors will see plenty of action next week. A bigger than expected cut in rate will trigger some hectic buying in these stocks, and improve overall sentiment to a notable extent.

Investors will be tracking the data on advance tax payments made by top notch companies for near term direction. Another significant key for the market's fortunes will be the rupee's movements against the U.S. dollar. After plummeting to a record low last Tuesday (11 June 2013), the partially convertible Indian currency managed to bounce back and regain some lost ground as the week progressed following the government coming out with some corrective measures to arrest the slide.

Investors across the globe will be eyeing the U.S. Federal Reserve's meeting that will end on Wednesday, 19 June 2013. Amid worries that the Fed might start scaling back its asset purchase program, the U.S. markets suffered some sharp setbacks in recent weeks, rendering the mood quite bearish almost across the globe.

The arrival of southwest monsoon rains on time and the monsoon's smooth progress since then augur well for the economy, and the market as well. The petrol price hike - state oil marketing companies hiked petrol price by Rs 2 per litre from Saturday - will make an impact on price movements.

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