Equity markets are expected to remain volatile during the week, as the street will be looking for signals from events on the domestic and foreign front. While the Reserve Bank of India will review its credit policy on Tuesday, markets globally will be following developments in the US for raising the debt ceiling limit.
Expiry of derivative contracts on Thursday will add to the volatility, say analysts.
“The worry list remains significant,” says Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors. “European debt problems are unlikely to go away, the US debt ceiling is yet to be resolved, the soft patch in the US is still in place and uncertainty remains on whether China will have a hard or soft landing – and the September quarter is normally the weakest time of the year for shares.”
The 50-share Nifty of the National Stock Exchange ended last week at 5,633.95. Technical experts believe the Nifty is likely to face a resistance around its 200-day moving average of 5,717.
“Nifty may remain in a range of 5,500-5,700 till the expiry of derivatives contracts next week,” said the head of institution sales at a Mumbai-based brokerage. According to Angel Broking, a weekly closing above 5,740 would indicate a clear direction of the trend.
There is largely a consensus on the street that the central bank, in its review on Tuesday, would increase key rates by 25 basis points (bps). Most analysts feel such an increase is already factored in and a significant downswing would be witnessed only if the increase is more than expected.
On the global front, US lawmakers will be keenly followed as they deliberate on raising the government’s debt ceiling limit to ward off any default concerns. The past couple of days have shown it would not be a smooth affair.
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According to Dow Jones, the Republican plan may reduce federal spending by between $3 trillion to $4 trillion in two steps, along with raising the $14.29 trillion debt ceiling. On the positive side, however, officials are trying to reach a consensus before financial markets open for trading tomorrow.
“I think by August 2, the US will have a deal in place to raise the debt ceiling,” said Joe Zidle, director and global wealth management investment strategist at Bank of America Merrill Lynch, in an interview to Business Standard last week.
“The days between now and August 2 will continue to cause a lot of volatility and the markets are understandably upset. Keep in mind that uncertainty is the enemy of growth.”
The week will also be marked by the launch of the initial public offer of L&T Finance Holdings, the largest share sale in the current calendar year. The company will be raising around Rs 1,245 crore by offering shares in the price band of Rs 51-59.