Pre-holiday mood in the stock markets ahead of Christmas and New Year will see the street witnessing a range bound volatility in the second last week of the year, with dearth of fresh buying and profit-booking by the FIIs, feel analysts.
On positive indications, the Bombay Stock Exchange bellwether Sensex surged 1.82 per cent or 356 points to close at 19,864.85 last week.
This was due to the November headline inflation dipping to 11-month low at 7.48 per cent and the Reserve Bank refraining from hike in key interest rates and infusing liquidity in the system.
But the experts opine that the market will see a lacklustre trade next week as the investors would prefer remaining sidelines towards the end of the year.
"A pre-holiday mood prevails, due to which there will be range-bound trading ahead of the Christmas holiday, as there will be a slowdown in the activity in December end. Investors will prefer to make fresh investments in the new year," SMC Capitals Strategist and Head of Research Jagannathan Thunuguntla said.
Analysts also said that holiday mood had already dawned on the markets with FIIs booking profits.
In the month of December so far, Dalal Street has seen foreign institutional investors turning net sellers to the tune of Rs 1,300 crore.
"FIIs have pulled out a lot of money from the markets this month, and the trend is likely to continue in the next week also, which will hamper the rally on the street," Networth Stock Broking head of institutional business Prakash Diwan said.
Besides, marketmen said that probable interest rate hike in RBI meet on January 25 and corporate earnings for the third quarter will set the direction for the market.
RBI in its mid-term review on December 16, kept all key policy rates unchanged, but reduced the Statutory Liquidity Ratio, the portion of deposits that banks park in government securities, by one percentage point to 24 per cent.
According to the IIFL Economist Ashutosh Datar the stage could be set for policy rate hikes by the RBI in the meeting on January 25.
He said RBI's Mid Quarterly Review meet this week did not contain any explicit guidance on whether there will be a continued pause in policy rates.
Also, globally, the concerns of euro-zone crisis and possibility of another rate hike in China will impact the markets back home, said marketmen.
Last week, the European markets ended subdued while Asian bourses were mixed with China's Shanghai down 0.15 per cent and Hong Kong's Hang Seng up 0.20 per cent.
