Rates and risks to affect index movements

By Rohit Vaid

Mumbai, Oct 2 (IANS) The Reserve Bank of India's monetary policy review, coupled with macro-economic data points and expectations of an economic stimulus package, are expected to set the course for Indian equity indices during the truncated week's trade sessions.

According to observers, market movements will also be affected by geo-political developments, direction of foreign fund flows and crude oil prices.

"This week, markets will look forward to the decision by the MPC (monetary policy committee) and if the MPC, via its statements, offers any hints on policy rate cuts or growth and inflation targets," said Devendra Nevgi, Chief Executive, Zyfin Advisors.

"Though the chances of a cut are very slim."

The RBI will hold its fourth bi-monthly MPC meeting on October 3 and 4. In its last review, the central bank had reduced its repurchase rate, or the short-term lending rate for commercial banks, by 25 basis points (bps) to 6 per cent from 6.25 per cent.

Besides the monetary policy review, macro-economic data points like Index of Eight Core Industries (ECI) figures, monthly automobile sales numbers and the Purchasing Managers' Index (PMI) for manufacturing and service sector will be keenly watched by investors.

"The tail winds enjoyed by domestic economy due to benign commodity prices and falling inflation has currently started to reverse," Vinod Nair, Head of Research, Geojit Financial Services, told IANS.

"On the backdrop of lackluster domestic macros, likelihood of extension of GST disruption and continued impact on corporate earnings, the current domestic premium valuation will not sustain and we expect consolidation to continue in near term."

Apart from macro-data, the direction of foreign fund flows will be the other major theme for the week, experts opined.

In terms of investments, provisional figures from the stock exchanges showed that FIIs continued with their selling spree and off-loaded stocks worth Rs 10,896.59 crore, during September 25-29.

Figures from the National Securities Depository (NSDL) revealed that foreign portfolio investors (FPIs) divested equities worth Rs 5,899.95 crore, or $897.14 million.

"The sentiment in the markets would be dominated by the domestic investors (DIIs) and how much will they buy to counter sale onslaught from the FPIs," Nevgi cited.

Foreign investors had divested Rs 5,328 crore on September 28, 2017 -- the highest in recent times -- whereas the DIIs net bought stocks worth Rs 5,196 crore on the same day. On a weekly basis, the DIIs had bought scrip worth Rs 11,666.60 crore.

In addition to equity investments, any announcement on an economic relief package for exporters after the GST council meets on next Friday, October 6 will also influence the movement of key indices.

Currency-wise, the Indian rupee weakened by 49 paise to close at 65.29 to a US dollar from its previous week's close of 64.80 to a greenback.

"As far as the rupee is concerned, this week, trend in domestic and global equity markets will play a key role. Apart from market trends, RBI monetary policy will be keenly watched," Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities, told IANS.

On technical charts, Nifty remains in a "short-term downtrend" and is expected to further consolidate after breaching its current support level of 9,760 points.

"Technically, while the Nifty has pulled back in the last two sessions, the index remains in a shortterm downtrend," elaborated Deepak Jasani, Head of Retail Research for HDFC Securities.

"Weakness could resume once again, if the supports of 9,760 points is broken. On the upside, the Nifty would need to cross the resistances of 9,854 points for the current pullback rally to continue."

Last week, the key Indian equity indices -- the BSE Sensex and the NSE Nifty -- witnessed further correction due to persistent outflow of foreign funds on the back of geopolitical risks and subdued macroeconomic sentiments.

Consequently, the 30-scrip Sensitive Index (Sensex) of the BSE plunged by 638.72 points or two per cent to close at 31,283.72 points.

Similarly, the Nifty50 of the National Stock Exchange (NSE) receded by 175.8 points or 1.76 per cent to close the week's trade at 9,788.60 points.

(Rohit Vaid can be contacted at rohit.v@ians.in)

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