The stock market is likely to be range-bound this week as investors weigh positive cues like declining food inflation and better-than-expected industrial growth against the recent hike in key short-term interest rates, say experts.
Market players said the short-term momentum is clearly negative for the market, as high interest rates are a significant damper for the overall sentiment.
"We have to wait and watch for commodities to decline and stabilise, IIP to rise and stabilise and inflation or interest rates pressure to ease and then markets can become more positive in the next 2-3 months," Mape Securities Senior Director (Research) Kislay Kanth said.
The market mood is likely to be vitiated by the government's decision to hike petrol prices by Rs 5 in New Delhi. Analysts apprehended that if petrol prices went up by Rs 1-2 per litre, the market would discount it, but if they went up by more than Rs 3-4 a litre, the market will go into the negative zone.
It was a lacklustre week for the market despite positive domestic economic indicators. In the week gone by, the BSE benchmark Sensex went up marginally by 0.06% to settle at 18,531.28 in the previous trading session.
"Going forward, the market will take cues from any sort of positive overtures from the Centre on the policy front. The market will welcome any further moderation in crude oil and other global commodities. Watch out for the April inflation data on Monday," IIFL Head of Research (India Private Clients) Amar Ambani said.
Analysts said the favourable election outcome would give the Congress-led coalition more leverage to push through long-pending reforms in the financial sector.
"The sentiment got a boost, as with the ouster of the scam-tainted DMK in Tamil Nadu, UPA-II could just be able to pursue long-pending reforms and will be able to deal with the 2G scam culprits much more effectively," Ambani said.
Food inflation dropped to 7.7% for the week ended April 30, the lowest level in 18 months. India's exports grew by an annualised 34.4% to $23.9 billion in April.
Factory output in March, as measured in terms of the Index of Industrial Production (IIP), slowed to 7.3%, compared to 15.5% expansion in the same month a year ago.
Experts said the IIP growth rate of 7.3% was higher than expected and will likely generate a positive response. The growth rate of 7.8% for FY11 is less than FY10, but is still good, given that IIP rates in the last 4-5 months were very volatile, they added.
