The Hindu Business Line : Action hinges on Tata Steel-Corus deal, RBI meet

After remaining subdued during most part of the week, the benchmarks made a sharp upturn during the tail-end of trading hours on Thursday, which also saw the expiry of January month contracts in the F&O segment.

The sudden recovery helped all the broad indices - BSE-500, BSE-100, BSE Midcap and BSE Smallcap - to end in positive zone. BSE Metal was the star performer with 7.27 per cent gain even as banking and auto indices ended in the red.

FIIs looking elsewhere?

Despite strong recovery, mutual funds turned net sellers to the tune of about Rs 1,300 crore while foreign institutional investors pumped in about Rs 600 crore including F&O segment. FIIs trading pattern, of late, suggests that they prefer to remain neutral with modest inflows.

However, their small buying this week helped them turn net buyers in January so far at Rs 239 crore against last week's negative position of about Rs 500 crore.

This suggests that FIIs are not willing to commit fresh funds on Indian markets and indulge only in portfolio churning, may be due to stretched valuation.

Among the emerging markets, Thailand, Pakistan, the Philippines and Malaysia managed to display a better show than India on the back of strong FII flow; according to Bloomberg data, year-to-date FII investments for Thailand stood at $326.4 million, the Philippines $135.5 million and for South Korea at $277.3 suggesting fresh foreign money entering those markets ignoring `over-heated' India. FII contribution to India is only $36 million.

With companies such as PFC, Idea Cellular, Firstsource and Indian Bank coming out with IPOs, mutual funds seem to have redeemed their current equity holdings to tap the IPO opportunities.

However, two major events - Tata Steel-Corus-CSN outcome and the RBI monetary policy meet - may set the tone for Indian stocks this week.

Price riddle for Tatas

Tata Steel and Brazil's CSN bidding war has entered the final stages; the outcome of the bidding war for the UK-based Corus through an auction process, which begins on January 30, would decide who is going to conquer Corus. Though the acquisition, if it succeeds, would make Tata Steel the fifth largest global steel maker, traders are more anxious on the price component, as heavy price would strain its balance sheet.

RBI and inflation

The RBI's monetary policy review meeting on January 31 is being keenly watched by market onlookers. The RBI's decision would be crucial, given the fact that inflation has recently surged to a two-year high of 6.12 per cent against the central bank's targeted range of 5.0-5.5 per cent.

Inflation, however, ended at 5.95 per cent last week.

Though a 0.25 percentage point increase in repo and reverse repo rate hike has already been discounted by the market players, any further hike would dampen the sentiment.

Liquidity check

Two recent major decisions of the Government to ease liquidity — reducing mandatory statutory liquidity ratio for bankers and Finance Ministry proposal to allow provident fund money into stock markets — may not happen soon.

Amidst inflation concern, bankers are not expecting the RBI to cut statutory liquidity ratio, though the Government has brought in an ordinance allowing the central bank to cut SLR below the present minimum level of 25 per cent.

The Central Board of Trustees of the Employees' Provident Fund Organisation has rejected the Finance Ministry proposal to allow 5 per cent of the deposit base in stock markets.

Counters such Tata Steel, ONGC, ITC, Hero Honda, SAIL, ACC, HPCL, M&M, Tata Tea and L&T may see some action as they are due to announce their Q3 numbers during this week.

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