Rate, CRR hikes may puncture the sentiment

The Reserve Bank of India (RBI) on Friday (30 March 2007) evening raised its short-term lending rate, the repo rate by 25 basis points, to 7.75% with immediate effect. Its cash reserve ratio (CRR) has also been hiked by half a percentage point. The cash reserve ratio will rise to 6.50% in two tranches, the first on 14 April and the second on 28 April.

The latest move by the central bank is expected to impact banking scrips directly and all other interest rate sensitive sectors indirectly.

"In the light of the current macroeconomic, monetary and anticipated liquidity conditions, and with a view to contain inflationary expectations, it is critical to take demonstrable and determined action on an urgent basis," RBI said in its statement on Friday.

Crude oil rose prices have surged near the $68 per barrel mark. Any sharp move from here may hurt the market very badly. On the other hand, inflation has been a nightmare for the last few months. Inspite of taking several measures to rein in prices, the government has not been able to bring it down. India's wholesale price index rose 6.46% in the 12 months to 17 March 2007, matching the previous week's increase, latest data released on 30 March 2007 showed.

A lot will depend on how the global markets pan out. Over a past few months, local bourses have been tracking global cues in the similar direction. Any sharp correction will lead to a fall here as well.

The next major trigger for the domestic bourses is Q4 March 2007 earnings, reports of which by corporates will start next month. Analysts expect Q4 results to be strong. Market men will closely watch what company managements have to say about the outlook for FY 2008