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This week, no matter what the commentators say, Dalal Street operators are likely to take the key indices upwards.
Of late, the ring has not been witnessing a battle between the bulls and the bears, but analysts and operators. Impact of this week's two key events — the Reserve Bank of India's policy review and Reliance Industries Ltd's quarterly results — will most likely be the opposite of what one would have imagined.
According to market intelligence, operators are ready to digest more than 25 basis points' interest rate hike, and also take into stride a lower-than-expected earnings growth from RIL. However, operators' aim of netting the FIIs and the retail investors may remain unfulfilled.
Analysts who said that the Sensex was headed for 16,000 are now eating their words. Some of them are rebuilding the key indices' path and the target for FY12.
A recent Ambit Capital research report said its base case — Sensex 18,000 — envisages a significant economic slowdown in India while its bull and bear cases, which are dependent on developments in the Western world, show the Sensex hitting 22,000 and 16,200, respectively.
FIIs are nibbling. But not buying the bulls-scripted story.
Morgan Stanley said last week that notoriously export-oriented Asian markets, excluding India and Japan, and capital inflow-dependent India are most obviously linked to US and European growth and sentiment.
“Even though country-specific issues (e.g., concerns about the quality of debt in China, weak IP and slowing government spending and consumption in India, concerns about household debt in Korea and political transition in Thailand) continue to feature prominently on the central bank radar, it is quite clear that the impact of global growth is already making waves as far as implications for monetary policy are concerned,” it added.
Deutche Bank expects the RBI to hike the repo rate by 25 basis points in the monetary policy review on Tuesday. It said domestic macro conditions have not changed materially since the last rate hike of June 16 (though global uncertainties have risen) for RBI to change its anti-inflationary stance in the July policy meeting.
But the importance of this policy meeting would be the perspective of what the central bank wants to communicate as regards to its monetary policy stance.
“We see possibility of one last rate hike of 25 basis points in the September policy meeting (taking the repo rate to 8.0 per cent), unless global economic and financial conditions become so adverse in the interim that the RBI is compelled to pause prematurely,” it added.
Not all researchers share such a faint optimism.
An RBI survey of inflationary expectations conducted in 1Q FY12 suggests that Indian households expect WPI inflation to rise to 12.7 per cent by the end of FY12. Given this view and given the political establishment's unwillingness to interfere in the central bank's inflation control exercise, ahead of the general elections in 2014, a simulation of RBI's monetary policy stance over the past decade suggest that there was a distinct possibility that there might in fact be further tightening of policy rates by 100 basis points in FY2012.
> jayanta_mallick@thehindu.co.in
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