The Hindu Business Line : Sensex likely to move in narrow range

The market witnessed a smart turnaround last week on the back of buying by both foreign and domestic funds; the Sensex gained 5.7 per cent and the NSE's Nifty surged 6.1 per cent. Further, heavy short covering by foreign institutional investors, ahead of July contracts' expiry in the F&O segment, helped the Sensex move past the 10,500-mark.

Also, equities across the globe were resilient, aiding the domestic market sentiment. The quarter percentage point rise in interest rates by the RBI last week did not dent the market confidence, as the hike was already discounted by participants.

Robust show

One of the reasons for the firm stock market show was the better financial performance from corporate majors. The overall financial performance, during the quarter, of major corporates was robust. Starting from Infosys, which announced its Q1 numbers earlier this month, a majority of companies across various sectors came out with good performance. However, Reliance Industries' Q1 operating profit margin was dented by higher feedstock prices. SBI and MTNL also reported subdued performance.

So with the result season and suspense over rate hike coming to an end, will the stock market sustain the renewed momentum this week?

Global cues

To answer this let us look for global cues. This week, the Reserve Bank of Australia and the European Central Bank would meet on August 2 and August 3 respectively to consider rate hikes. It is widely expected that both would hike rates by quarter percentage point. The Bank of Japan (August 7) and the US Federal Reserve (August 8) will meet next week to take a decision on interest rates.

With the rate hikes happening across the globe, the days of easy money are gone. As such, the end of zero per cent interest rate in Japan last month could have a significant impact on global money flows. For one thing, it could spell the end of "yen carry trade," the practice of large investors borrowing yen cheaply to invest in instruments with higher yields — from the US treasuries to stocks to risky emerging market stocks.

A possible rate hike by the Bank of Australia and ECB may further tighten the liquidity situation.

Crude price

With Israel-Lebanon conflict continuing relentlessly, the chance of crude price hovering around $75 per barrel mark is quite high. Crude currently trades around $73.3-mark.

India still shines

However for the global investors, the Indian growth story is still intact. Whether it is higher crude price or rate hikes nothing seems to have impacted the India attraction. However, the coming days are crucial for the corporates to sustain their growth. Already, India Inc is not happy with the rate hike, as it fears that it would impact corporate expansion plans.

The market has now digested all the positives and negatives that have come its way and awaits further clues to make directional call.

This week the market may remain confined to a narrow range unless otherwise some dramatic event surcharges the atmosphere.

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