Market to witness volatility

Investors on Dalal Street may see volatility in the week ahead and will wait for cues from the US markets, which might get a booster doze in the form of interest rate cut from the Federal Reserve, analysts said.

The benchmark BSE Sensex lost 168 points in the past week at 15,590.42 points on Friday. Meanwhile, US benchmark index Dow Jones Industrial Average (DJIA) fell nearly 250 points to end at 13,113.38 points, while Nasdaq-100 also closed down 49 points at 2,565.70 points.

The US markets had declined after the jobs data came in far worse than expected, threating to throw the economy into a recession. American employers dismissed 4,000 workers last month, marking a sharp change of direction from the 68,000 jobs that had been created in July.

In a research note, global financial services major Citigroup expects US Federal Reserve to lower interest rates by 75 basis points before the end of the year, with the first cut coming on or even before the scheduled meeting of Federal Open Market Committee on September 18.

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"Our global strategists have concluded that Fed cuts should be supportive for equities performance, with non-US markets outperforming... Instances of Fed rate cuts have been meaningfully positive for Indian equities as well, especially on 12-24 month time horizons," Citigroup analyst Ratnesh Kumar said in the India Equity Strategy report.

Even in an extremely pessimistic scenario of a recession in the US, massive rupee appreciation and sharp slowdown in domestic growth, Citigroup does not see an earning collapse in India, "due to strong and broad-based growth momentum in the Indian economy".

Besides, Foreign Institutional Investors again embarked on a buying spree in the equities market in September after a month of net sale in August. In the first week of September, FIIs purchased equities worth Rs 2,869 crore and Rs 752 crore in the debt markets.

"The trend taken by the FIIs in the coming week could be crucial for the direction market takes," an analyst said.

Domestic mutual funds were also net buyers worth Rs 353.80 crore in equity market during four trading sessions from September 3 to September 6.

The markets would also be watching the outcome of the negotiations between the UPA government and its Left allies on the Indo-US nuclear deal.