MUMBAI: The Indian stock market is seen choppy with a negative bias next week. With the end of the third quarter results season and Reserve Bank
Last two days of the current week, already cut short by a holiday Tuesday for Republic Day celebrations, saw the bulls try to get a grip on a losing market. Whether they will be able to hold their own against the bear onslaught is the question.
Bombay Stock Exchange’s 30-share Sensex ended the week ended Jan 29 at 16,357.96, losing 501.72 points or 2.98 per cent from the earlier week’s close of 16,859.68.
National Stock Exchange’s Nifty closed the week at 4882.05, down 153.95 points or 3.05 per cent from Jan 22 close of 5036.00.
The recent correction in stock prices was anticipated following the sharp run-up in stock prices on the back of expectations of good performance from India Inc. Overall, the third quarter results have surpassed or been in line with street estimates but with inflation becoming a worry, traders advise caution.
“We are very cautious at this juncture and suggest all short term players to lighten the position to avoid a sudden and sharp fall in the market. On the upside till Nifty does not move above 5000 levels we are not comfortable in suggesting in any long position to traders,” said an Anand Rathi report.
On Friday, in its Q3 monetary policy, the RBI raised the cash reserve ratio (CRR) by a higher-than-expected 75 basis points to 5.75 per cent against estimates of 50 bps hike. The central bank left its policy rates, repo and reverse repo--unchanged at 4.75 per cent and 3.25 per cent respectively. The CRR hike will be effected in two stages: by 50 bps for the Feb 13 fortnight and by 25 bps from Feb 27, sucking out Rs 36,000 crore of surplus liquidity from the banking system.
However, the sharp rise in food inflation led the RBI to revise upward its wholesale price index (WPI) inflation projection to 8.5 per cent end-March 2010 from 6.5 per cent. The apex bank also revised upward its GDP projection to 7.5 per cent for FY10 from 6.0 per cent, on the back of a strong rebound in industry and better prospects of Kharif crop.
“Increasingly confident of the economy's return to growth path (sustained domestic demand; early signs of revival in private sector demand for consumption and investment; growth in exports; signs of improvement in external demand factors), the RBI is moving further in reversing the crisis-driven expansionary stance. Capacities across many sectors could be stretched by this time next year. Hence, further upward pressure on product prices. There is upside risks to inflation from higher-than-expected commodity prices (including oil prices that have been range-bound). The RBI has also called for a gradual but simultaneous exit from the fiscal accommodative stance that was necessarily adopted during the crisis. This would be almost mandatory if the system interest rates need to be kept under check,” said Murali Krishnan, Head of Research, Ambit Capital, on the RBI’s policy moves.
Ambit expects WPI inflation to rise to double-digits in March, moving above the RBI’s projections once again. Thus, it expects 150 bps of repo and reverse repo rate hikes and a further 75 bps of CRR hikes between now and March 2011.
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Src: ET, Businessline and DP Blog etc