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The US Federal Reserve, in its two-day meeting ending Wednesday, will mull over the future of its massive bond purchase programme known as quantitative easing (QE)3. On Tuesday, the Reserve Bank of India (RBI) will decide whether to increase its key policy rate.
The expiry of the October derivatives contracts on Thursday will heighten volatility in the coming week. It is widely expected the Fed will announce on Wednesday its decision to continue with QE3 in its current form, as the US government wants joblessness to decrease. What investors are watching is if the Fed will give a time-table for withdrawal of the monetary stimulus package.
“If the US Fed gives a timeline for the start of the tapering of QE3, then the market might correct,” said K Ramanathan, executive director and chief investment officer, ING Investment Management (India). “But for now, the expectation is the Fed will not pull the plug on the liquidity flow”.
Foreign investors were net buyers on all days except one during October, having bought equities worth Rs 13,346 crore. Domestic investors, on the contrary, have been net sellers at Rs 9,354 crore during the period.
RBI is broadly expected to raise its repo rate by 25 basis points (bps) and cut marginal standing facility (MSF) by 25 bps.
Ramanathan said a repo rate increase, coupled with an MSF cut, would ease the pressure on liquidity in the short term market, while maintaining a tight grip on long-term rates. “If RBI only raises the repo rate, then there could be some disappointment,” said Sachidanand Shukla, economist at Axis Capital.
A likely correction could also be due to the rally seen in the past two weeks, said analysts. On Friday, the BSE Sensex closed at 20,683 and the NSE Nifty at 6,144, each ending the week down about one per cent. However, since the beginning of this month, the indices have risen by about seven per cent, buoyed by good foreign flows.
Announcements for the September quarter (Q2) on fiscal deficit data and a host of company results, including Maruti Suzuki, Lupin, Sesa Sterlite and Bank of Baroda will also keep investors busy in the week ahead. Street participants said it had been swayed by the good Q2 results announced by a majority of large-cap firms. The mid-cap and small-cap numbers, likely to come out starting next week, might put an end to the optimism, they said.
“The markets could see some downside due to disappointing quarterly numbers from mid-cap companies. On the other hand, the markets could go up as participants position themselves in the run-up to the state elections on hopes of new governments coming to power,” said S Krishna Kumar, head (equity), Sundaram Mutual Fund.
A number of public sector banks (PSBs) will also be reporting their Q2 results next week. These numbers could be lower than market expectations, analysts said, owing to their high non-performing assets, which could put further pressure on PSB sector stocks.
Technical analysts said the Nifty was expected to trade between 6,100 and 6,300. “Unless the 6,280-level is crossed, no long positions should be created. As of now, the 6,100-level looks like a strong support level. But any dip below that could see the markets correct by two to three per cent more,” said Sahaj Agrawal, deputy vice-president (derivatives research), Kotak Securities.
THE WEEK AHEAD
EVENTS
Tuesday, Oct 29,’13
* RBI policy review
* FOMC meet - Day 1
Wednesday, Oct 20,’13
* FOMC meet - Day 2
Thursday, Oct 31,’13
* F&O Expiry
* Fiscal deficit numbers (September 2013)
RESULTS
Monday, Oct 28,’13
* Maruti Suzuki
Tuesday, Oct 29,’13
* NTPC
* Ranbaxy Labs
Wednesday, Oct 30,’13
* Bharti Airtel
* DLF
* Grasim Ind
* Jindal Steel
* Lupin
Thursday, Oct 31,’13
* Bank of Baroda
* Dr Reddys
* IDFC
* Sesa Sterlite
