With mixed signals on the economic front, the stock market is likely to see volatility this week as investors track RBI’s policy as well as the US Government’s monetary easing steps, according to experts.

Besides, foreign investors are expected to closely watch the Government’s initiatives amid a depreciating rupee.

“The RBI meeting on Monday will be an important trigger for the market. Expectations are mixed on whether the RBI will cut rates or not,” Kotak Securities Head (Private Client Group Research) Dipen Shah said in a research note.

RBI monetary policy review

Industry is anticipating the central bank to slash rates to boost the sagging growth even as there are concerns that easing money supply would further weaken the rupee.

According to analysts, stocks are expected to see volatile trading as the next moves of RBI and the US Federal Reserve would be crucial in determining the overall investor sentiment.

Snapping a three-day losing streak, the 30-share BSE index Sensex had jumped nearly 351 points to close at 19,177.93 points on Friday as a drop in WPI inflation rekindled the hopes of a rate cut.

Fed quantitative easing

Meanwhile, the US Federal Reserve meeting this week would be closely tracked for cues on the future of quantitative easing policy.

Investors are also anticipating more reform initiatives with Finance Minister P Chidambaram hinting at more such steps to boost spur growth that has hit 10-year lows.

Apprehensions about American monetary easing policy are cited as a reason for the sharp fall in rupee, which closed at 57.51 against the dollar on Friday. The currency slumped to a life-time low of 58.98 in the intra-day trade against the dollar on June 11.

Analysts felt investors’ expectations come against the backdrop of mixed economic signals such as falling inflation and declining industrial growth.

The WPI-based inflation dropped to a 43-month low of 4.7 per cent in May whereas industrial growth rose just 2.3 per cent in April.

In recent days, Foreign Institutional Investors (FIIs) are on a selling spree in the domestic stock market. Going by official data, foreign entities pulled out over Rs 17,000 crore in the last two weeks as rupee continues to take a beating.

(This article was published on June 16, 2013)
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