After a sharp run-up, the key benchmarks are likely to relent on profit taking this week. Expectations are also running high on Dalal Street for further financial reforms after the Government comfortably won Parliament nod on FDI in multi-brand retail.

Already a lot of hype has been created by Union Ministers, who have been sending signals of more such reforms in quick time. If they fail to walk the talk or signals of any slackness on policy initiatives, market will react adversely.

The Centre is aiming to pass Insurance and Pension Bills and the Banking Laws (Amendment) Bill, 2011, Companies Bill and Competition Bill during the current session. The passage of Insurance Bill will raise the limit for foreign direct investment in the sector to 49 per cent from current 26 per cent.

“The pace of reforms in India has accelerated post the appointment of Chidambaram as Finance Minister. We believe expectations of faster reforms are going to drive the markets at least till the Budget in February 2013. A few key reforms to look out for are measures to kick-start investments (including acceleration of project clearances, Land Acquisition Bill, NIB etc), fiscal consolidation and measures to improve foreign investments,” said Bank of America-Merrill Lynch in its recent report.

“Yet, the flip side of this is that the Government is in a minority and to that extent their attempts to hasten economic reforms could be hampered in the legislative process,” it added.

Industrial output data

Market participants will also eye industrial output data for October, which will be released on Wednesday, and inflation based on the wholesale price index that would be out on Friday, as these will influence the RBI’s stance on rate. The mid-quarter monetary policy review by RBI is scheduled on December 18. In the last monetary policy review, the RBI had kept its key policy rate unchanged at 8 per cent citing high inflation.

Signals from the global market would also be closely monitored, particularly from the US, which is facing fiscal cliff. Any positive settlement would trigger rally across global markets.

BofA-ML said: “The possibility of a US fiscal cliff remains a key swing factor in 1HCY2014 [first of half 2014]. Our US economist, Ethan Harris, ascribes a 60 per cent probability that the cliff will be fixed by multi-stage negotiations. This, indeed, is our base case. There is a 20 per cent chance that the full cliff occurs and political negotiations reverse much of it after the fact. Finally, we place a 20 per cent chance of a resolution before the year-end.” BofA-ML expects a full fiscal cliff can impact India’s growth by 140 bps.

badrinarayanan.ks@thehindu.co.in

(This article was published on December 9, 2012)
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