High volatility is expected in the Indian equities space as anxiety builds-up over the upcoming quarterly results, expiry of the May futures and options (F&O), key economic data from the US and the hope of a rate cut by the apex bank.
The markets, which recovered last week from a major correction during the weekly trade ended May 15 and May 8, would be looking at news on the onset of the monsoon, disinvestment dates for state-run IOC and NTPC and the government's move on the retro-tax issue.
"Markets will be volatile during the coming week. We have not yet bottomed-out as the reasons for the corrections are still present like subdued quarterly numbers, international instability and growing commodity prices," Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.
"However, the good part is that many concerns like moderation in corporate growth have been factored-in," Nevgi added.
He elaborated that the reality that the government's ability to pass key bills like on GST and land acquisition is constrained has also sunk-in.
"Other major trigger will be commodity prices, especially the spiralling crude costs which led petroleum products to become dearer. This factor will be looked at closely by the markets. The rupee-dollar situation will also be monitored closely," Nevgi added.
However, Alex Mathews, head of research with Geojit BNP Paribas Financial Services, predicted that healthy buying will take place in the first few days of the coming week.
"Healthy buying is expected on Monday and Tuesday due to Friday's statment by the US Fed on delays in a rate cut. The rest of the week will be volatile due to the monthly F&O expiry," Mathew predicted in an interaction with IANS.
"Major results of Sensex constituents like L&T, BHEL and Tata Motors will led to stock and index specific movements in the market," Mathews added.
Nearly, 40 percent of those listed on the the 30-scrip BSE sensitive index (Sensex) are yet to declare their fourth quarter results.
According to Mathews, apart from the domestic cues, US-based data such as monthly services PMI (purchasing managers index), gross domestic product (GDP) numbers and housing sales figures will also be the key drivers for the markets.
But, the mother of all cues will be signs from the Reserve Bank of India (RBI) on rate cuts ahead of its monetary policy review which is scheduled for June 2.
The markets are hopeful that better-than-expected retail and wholesale price data will prompt the apex bank to cut rates and kickstart the consumer cycle in the country.
This will lead the foreign investors back into India, one amongst a few growing countries that still have the potential of a rate cut.
"Any statement by the RBI governor has the power to either boost the markets or sink them," Nevgi jibbed.
Meanwhile, Anindya Banerjee, senior manager for currency derivatives with Kotak Securities, said that the role of domestic investors should not be discounted as they have played a major role in supporting to the markets when foreign funds recently took flight.
"Domestic investors have played a major role. They will now be interested more in the markets because of the cheap valuations and the upcoming stake sales by the government in Indian Oil and NTPC," Banerjee told IANS.
The markets will also breathe a sigh of relief on account of the arrest in the outflow of foreign funds due to the retro-tax issue.
The out-flow due to minimum alternate tax (MAT) stopped after government's assurances that no new tax notice will be served and that an expert committee on the issue was formed on Thursday.
The MAT on capital gains is expected to impact the margins of foreign funds. This has hit their investment appetite for the Indian equities market.
According to data with the National Securities Depository Limited (NSDL), Foreign Portfolio Investors (FPIs) bought stocks worth Rs.2,120.77 crore or $333.33 million in the week ended May 22.
"The government needs to raise the FII investment limit from $35 billion to attract more funds," Banerjee added.
With the onset of June, the markets will also look to the sky for guidance, said Vineeta Mahnot, equity research analyst with Hem Securities.
"Any news on the performance of monsoon this year will give a picture of either an increase or decrease in rural incomes. This will also tell us about the growth potential of the country," Mahnot told IANS.
(Rohit Vaid can be contacted at rohit.v@ians.in)
