FII disposition to depend on fiscal deficit situation

An up side of one to 1.5 per cent is expected on the Sensex and the Nifty from last week, with no domestic cues anticipated to upset the cart.

Chartists observe that the Nifty faces stiff resistance at 5400 levels and this is just a relief rally ahead of the Union Budget.

While the street is upbeat over $2.2 billion-plus FII inflow as on date, it should also be seen as the routine allocation made to all emerging markets, come January.

The Street is abuzz with talk that the relief rally might end with FIIs exiting sooner than later.

Fiscal deficit is sure to exceed last year's figure, but by how much, it awaits to be seen. This will, to a great extent, influence FII behaviour. There is no domestic economic data expected this week and if RBI does an open market operation in G- Secs, anticipate yields to soften from last week's close of 8.21 per cent to 8.08; else look for 8.25 per cent levels.

Inflation has cooled but the question of sustainability at current levels remains. The same also applies to manufacturing sector, even though the HSBC's Purchasing Managers' Index, a barometer of economic activity, rose from 54.2 in December to 54.5 in January.

The dollar is about to complete a corrective cycle against the rupee. The tone is slightly bullish in favour of the dollar with 47.95 levels being a stiff resistance for the rupee to breach this week.

On the global front, the world is watching the outcome negotiations for a second bailout package for Greece.

The view on the Euro is bullish. Euro is expected to face stiff resistance at $.1.34 dollars to a Euro. Any violation of $1.285 levels could lead to significant erosion of the Euro vis-a-vis the dollar.

The dollar index (DXY), which just about finished a corrective move, in likely to bottom out in 78.5 -78.8 range.

The US 10-year treasury is anticipated to be range bound between 1.82- 2.0 per cent levels in the absence of any high impact data during the course of the week.

Nymex crude futures are expected to stay below $99.5 to a barrel this week and the larger trend is downwards.

The best case scenario for gold is $1,775 to an ounce for the week.

The data expected globally this week are: Euro zone Sentix Confidence Index is expected to clock minus 14.3 up from the previous minus 21.1, on February 6.

On February 8, Japan's Eco watch survey pegs the index at 47.6 up from the previous 47. On February 9, China is set to announce both the producer and consumer price indices both of which are expected to lower than the last time at 0.7 and four respectively.

In Europe, there is expectation that interest rates will stay put at 0.5 per cent in UK and one per cent in Euro zone.

The week ends with University of Michigan Consumer Confidence Index which is anticipated to dip marginally.

murug@thehindu.co.in

raghavendrarao.k@thehindu.co.in

(This article was published on February 5, 2012)
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