| The market is expected to maintain an average surplus liquidity of around Rs 25,000 crore. Around Rs 30,000 crore was sucked out of the system last week and an additional amount of Rs 16,000 crore is expected to flow out this week through liquidity-tightening measures of the RBI. |
| The equity market is expected to undergo a bit of a correction following profit-booking by institutions and this may slow down the foreign exchange inflows a bit, says a dealer. |
| Therefore the additional creation of liquidity will not be as much as it was seen the last week. Even if there is additional liquidity, the RBI is likely to continue its aggressive intervention in the market to absorb surplus funds. |
| Besides issuing bonds and bills under the Market Stabilisation Scheme ( MSS), it is entering into buy-sell swaps to absorb excess dollars. In the process, it buys dollars in the spot market (today's market with settlement after two days) and sells them in the forward market (for delivery in future). |
| Thus the payment of rupee funds for procurement of dollars is postponed till the time the market is in the actual need of funds. This exercise is expected to continue for some time since bond issuance under the MSS is hurting the country's fiscal deficit, say dealers. |
| This week, the market will witness an inflow of Rs 3,272 crore as against an outflow of Rs 16,000 crore. |
| Rupee: Set for a dip |
| The equity market is poised for a correction and the market may see some large-scale profit-booking, says a dealer. This is because the market feels that valuations have peaked. If this happens, foreign exchange inflows may slow down a little. |
| Moreover, most of the companies are expected to come out with their half-yearly results. It is expected to be a mix since most of the companies with exposure to international markets may have taken a hit from the appreciating rupee, add market sources. |
| However, there will be an increased covering of imports, both oil and non-oil. Dealers say almost 80 per cent of the total imports are yet to be hedged. Since importers are getting lucrative offers, there is a rush among companies to cover their payments. |
| Oil companies are busy covering their refining margins rather than the actual oil payments. An official of an oil company said the refining margin for an oil marketing company was pegged to the rupee-dollar exchange rate. |
| Thus with every rise in the rupee, the margins go down. In this backdrop, the spot rupee is expected to rule in the range of 39.30-39.50 to a dollar. |
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