Intra-day volatility likely to rise at the bourses

This week, the decision on foreign direct investment (FDI) on multi-brand retail could be a game changer. Equities are likely to see higher intra-day volatility in the four-day trading week (market is closed on Tuesday on account of Muharram) due to the ongoing Euro zone crisis and other domestic factors. Like last week, trading volumes are likely to remain low.

Market participants are also keenly observing the outcome of the European Summit on December 9, which will aim at closer political and fiscal consolidation among the 17 Euro zone nations.

Stock markets recovered last week, globally, on the back of liquidity easing measures taken by the six central banks and on China's decision of lowering cash reserve ratio. Besides these, the Centre's move to allow FDI in retail added more buoyancy to domestic market because it signalled the Government is back to reformist mindset. In this backdrop, market participants, particularly foreign institutional investors, even ignored the moderation in domestic GDP number, and pumped in money.

However, now there are reports that in a bid to end the impasse in Parliament, the Government might put on hold its decision to allow FDI in multi-brand retail. The Government decision was revealed by Ms Mamta Banerjee of Trinamool Congress, which is a major supporter of the UPA Government. If the Centre goes back on the decision, the stock market could see a major sell-off, as this would paint the Government image in bad light. “What can swing India's prospects now is really how the Government handles the Opposition and thus manages to gives some sense of its control on the Parliament, and thus reform process. Such confidence would influence the INR (Indian rupee), capital flows, etc and thus could easily override the tearful global impact on them. For a start, we await the fate of the recently passed policy on FDI in retail, on which hangs the introduction of the Lokpal and Food Security Bills - and hopefully then 2 steps removed, deliberations on the other really important ones of the economy,” said a note from Enam.

There are also hopes that RBI in its December 16 meet might follow suit by easing liquidity and reduce interest rate, particularly after GDP growth slowed to 6.9 per cent in September quarter. Besides, the fall in food inflation to 8 per cent in the week ended November 19, from 9.01 per cent in the previous week, is also providing extra comfort for RBI to reduce CRR, if not, interest rate. However, what could spoil the street expectation is the rise in crude oil price following the liquidity boosting step undertaken by central banks across the globe. If crude oil price maintains firm trend and fuelling inflation, then the chance of RBI reducing interest rate appears rather remote.

>badri@thehindu.co.in

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