Dalal Street could be on a sticky wicket this week. The short-term global and domestic scenarios appear to be dicey. Swings could be wild. Clues could be deceptive.

Equity market aggregates at times create false impressions in a short-to-very-short time frame. When the thin line between sentimental reaction and a fundamental response is blurred — inter-session or intra-day — as the regulars would testify, the deceptions bowl many players out and test their mettle almost every moment.

This is such a time; greed and fear are almost equally active simultaneously.

Thoughts of RBI's probable move on the interest rates on the next review day (January 25) might seem scary.

Doubts are surfacing on the sustainability of improvement, that was witnessed recently, in the current account deficit.

Some market economists said that the policymakers' attempts to maximise the growth opportunity — reflected in the GDP appreciation rate after the credit crisis — came at the cost of a rise in macro stability of higher inflation, a wider current account deficit and tighter inter-bank liquidity.

A diametrically opposite view is also being propounded by the street experts: Strong growth momentum, supply-side bottleneck, distributional inefficiencies, and macroeconomic distortions (negative real interest rate being the key one) are again becoming the major challenges for policymakers.

In the short run, this school of thought is not concerned that higher than expected risks in the form of inflation would substantially undermine the country's macroeconomic stability.

Given India's relatively strong growth and rising interest rate differentials, a third view predicts sufficient net capital flows will finance the current account deficit. The linked expectations are of a gradual INR/USD appreciation to 44.1 by March and to 42.3 by December.

Is market overestimating the rate hikes that the RBI will deliver in 2011? There is hardly any consensus.

Talking to a number of analysts and market observers, one learns to cope with widely varied rate hike expectations even in the short-term.

Some strongly argue that fiscal policy and not monetary policy should provide the key to clear the uncertainty.

All these discourses do not help the lay investors. It appears that retail investors, who are still in a fairly risk-averse world, may postpone their entry into the ring.

>jayanta_mallick@thehindu.co.in

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