 "Central banks could determine market direction")
Stock investors are on the edge in the run-up to the US Federal Reserve meeting on Wednesday, when the central bank might decide to roll back its gigantic monetary stimulus programme. Analysts said a pullback of the third round of bond-buying, known as quantitative easing (QE3), is more or less expected but investors are nervous about the extent to which the Fed would cut the monthly purchases. Investors will closely watch the decisions of new Reserve Bank of India chief Raghuram Rajan, who will unveil his first monetary policy review on Friday.
Analysts said investors expect the Fed to pull back $10 billion out of the monthly bond purchases. Every month, the Fed buys $45 billion of Treasury securities and $40 billion of mortgage-backed securities, according to Bloomberg. An amount in excess of $10 billion a month will hurt markets, participants said.
"Equities could see a sharp reaction if the quantum of the tapering is harsh," said Sudhakar Ramasubramanian, managing director of Aditya Birla Money.
RBI is not expected to cut policy rates in the coming meeting. "We don't expect a rate cut but if measures to ease out the liquidity tightening are taken, it will give markets some comfort," said Arindam Ghosh, managing director, Blackridge Capital.
Some investors worry RBI could raise rates, after Bank Indonesia raised its benchmark policy rates by 25 basis points. Market participants are drawing parallels between India and Indonesia because both their currencies slumped recently.
A section of the market believes the impact of a QE3 tapering might not be significant. "The effect of QE3 tapering is unlikely to be drastic because FII (foreign institutional investors) ownership (especially proprietary desks) in debt is very low, while their holdings in equity are proving to be relatively sticky," said Hitendra Dave, managing director (global markets India), HSBC. "Whatever is the outcome, clarity will be helpful as investors will be relieved that an uncertainty is done away with."
"With the QE3 tapering a given, foreign flows will neither see a huge rise or a big decline," said Ghosh. "Foreign flows will now be guided by further serious concerns in the fiscal deficit situation or a sovereign downgrade, neither of which is likely to happen," said Ghosh.
Technical analysts said the Nifty could rise to 6,100-levels in the coming week. "Markets have been showing positive momentum. So we have a strict stop-loss indicated at 5,650-levels and would participate in the upmove till 6,100-levels," said Shubham Agarwal, vice-president and senior analyst (technical equities) at Motilal Oswal Financial Services. "The rise will be led by stocks in the auto, pharma and information technology sectors."
Analysts said investors expect the Fed to pull back $10 billion out of the monthly bond purchases. Every month, the Fed buys $45 billion of Treasury securities and $40 billion of mortgage-backed securities, according to Bloomberg. An amount in excess of $10 billion a month will hurt markets, participants said.
"Equities could see a sharp reaction if the quantum of the tapering is harsh," said Sudhakar Ramasubramanian, managing director of Aditya Birla Money.
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According to market participants, Rajan could partly base his decisions on whether to reverse the recent liquidity tightening measures on the Fed meeting outcome. "If RBI does not reverse some of the liquidity tightening measures taken by the previous RBI governor," said Ramasubramanian.
RBI is not expected to cut policy rates in the coming meeting. "We don't expect a rate cut but if measures to ease out the liquidity tightening are taken, it will give markets some comfort," said Arindam Ghosh, managing director, Blackridge Capital.
Some investors worry RBI could raise rates, after Bank Indonesia raised its benchmark policy rates by 25 basis points. Market participants are drawing parallels between India and Indonesia because both their currencies slumped recently.
A section of the market believes the impact of a QE3 tapering might not be significant. "The effect of QE3 tapering is unlikely to be drastic because FII (foreign institutional investors) ownership (especially proprietary desks) in debt is very low, while their holdings in equity are proving to be relatively sticky," said Hitendra Dave, managing director (global markets India), HSBC. "Whatever is the outcome, clarity will be helpful as investors will be relieved that an uncertainty is done away with."
"With the QE3 tapering a given, foreign flows will neither see a huge rise or a big decline," said Ghosh. "Foreign flows will now be guided by further serious concerns in the fiscal deficit situation or a sovereign downgrade, neither of which is likely to happen," said Ghosh.
Technical analysts said the Nifty could rise to 6,100-levels in the coming week. "Markets have been showing positive momentum. So we have a strict stop-loss indicated at 5,650-levels and would participate in the upmove till 6,100-levels," said Shubham Agarwal, vice-president and senior analyst (technical equities) at Motilal Oswal Financial Services. "The rise will be led by stocks in the auto, pharma and information technology sectors."