This week, the Nifty and the Sensex are likely to shed two per cent over last week before bouncing back.

The tone, however, would be set by Monday's inflation data. The street is expecting the April inflation number to be slightly below March's 6.89 per cent.

Yield on benchmark 10-yr G-Sec is expected to harden 10 -12 basis points over last week's close of 8.55 per cent.

Current account deficit at 4.3 per cent during the December quarter of FY-12, deceleration in export of goods and a draw down of $12.8 billion forex reserves (accretion of $4 billion in Q3 FY11) are concerns that need to be addressed immediately.

Results to watch out for are Indraprastha Gas, L&T, Aditya Birla Nuvo, Bajaj Auto, Tata Steel, Coal India and SBI.

The rupee may surprise the street against the US dollar and could touch 52.60 levels to a dollar.

On the global front, the government debt to GDP ratio of the Euro zone is at an all-time high of 87.22 per cent (Q4 CY2011).

The European Central Bank has mandated Euro zone nations to adopt a fiscal rule that keeps government deficit at below 0.5 per cent of GDP in structural terms crucial for a smooth functioning of the economic and monetary union.

“These structural reforms are necessary to boost long term economic growth and counter the challenges posed by an ageing population and emerging markets, if Euro zone were to maintain the same standard of living that is being enjoyed now,” said Mr Peter Praet, Member of ECB's Executive Board last week.

Globally, banking stocks are likely to bear the brunt of global investors as a knee jerk reaction to the JP Morgan episode.

It is interesting to note that synthetic credit derivatives are again in the news. Used to hedge loan exposures and credit risks to companies, there is a cost involved for such transactions.

Regulators worldwide will now become more active in their surveillance of such hedged positions.

Risk aversion is expected to prop up US 10- yr treasury closer to two per cent levels.

Though currency strategists are bearish on the Euro this week, it could end up breaking 1.3000 $ levels to a Euro.

Nymex crude futures have a strong support at $95 to a barrel levels and is expected to move up this week.

Gold is likely to stay range-bound and within two per cent on either side of last week's close of $1584 to an ounce.

> raghavendrarao.k@thehindu.co.in

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