The market may extend the correction that was set in on Friday (8 December) with RBI in a surprise move raising cash reserve ratio (CRR) by 50 basis points. The news of RBI raising CRR hit the market after trading hours on 8 December. The CRR hike is aimed at controlling inflationary expectations and it is likely to push up deposit and lending rates.
FII inflow holds key and it will dictate near term trend on the bourses. Traders are likely to do front running on expectations of strong FII allocations for the new calendar year 2007. Downside on the bourses is likely to be capped by expectations of strong Q3 December 2006 results which would begin next month.
For global markets, the near term trigger is the US Federal Reserve’s meeting on Tuesday (12 December) to decide on US interest rates. Fed is expected to keep interest rates unchanged. Analysts will be closely watching the Fed’s accompanying statement for cues of future rate moves.
Asian markets were steady to firm on Monday (11 December). Key benchmark indices in Hong Kong, Japan, South Korea and Singapore were up by between 0.2% to 1.4%.
Meanwhile, the US Congress early on Saturday took a major step toward permitting the sale of American-made nuclear reactors and fuel to India by giving final approval to Indo-US nuclear bill.