Market seen opening firm; RBI monetary policy eyed

Key benchmark indices are likely to open firm tracking positive global markets. The Reserve Bank of India's (RBI) quarterly review of the monetary policy will be closely watched.

Volatility may rise in the coming days as futures & options contracts for January 2009 series expire on Thursday, 29 January 2009. As per reports, rollover of Nifty positions from January 2009 series to February 2009 series was 38% while marketwide rollover of positions stood at 31%, as on Friday, 23 January 2009.

The street expects the RBI to signal a softer interest rate stance in its meet today, 27 January 2009, although the key rates are expected to stay on hold. Economic research firm Moody's Economy.com predicts the central bank may take a relatively smaller step, following a series of aggressive interest rate cuts from October 2008. It forecasts a 50-basis point reduction in the repo rate, to 5%. Meanwhile, the cash reserve ratio and the reverse repo rate are likely to be kept unchanged, as their current settings leave little room for further cuts.

Since October 2008, the RBI has released over Rs 3,20,000 crore into the banking system to usher in a low-interest regime in the economy, as prices of fuel, agricultural commodities and metals plunged, easing inflationary pressure.

The research firm added that in the present economic environment, the RBI is expected to focus on the growth rate and credit market stability when reviewing monetary policy and so the monetary easing cycle will continue through the first half of 2009.

After declining for 10 consecutive weeks, inflation, based on wholesale prices, rose by 0.36 percentage points to 5.6% for the week-ended 10 January 2009, from 5.24% for 3 January 2009. The PM's economic advisory panel member Mr Saumitra Chaudhuri expects inflation to come down to 3 to 4% by the end of this fiscal.

Earlier, inflation has more than halved from a 16-year high of 12.91% in August 2008 as a global economic slump drives down prices of oil and other commodities.

Asian stocks gained today, 27 January 2009, as US economic indicators gave a hope that demand for commodities and Japanese-made goods will improve. Japanese benchmark index Nikkei gained 267.93 points, or 3.49%, to 7,950.07. Hong Kong, China, Taiwan, Korea and Singapore`s stocks are not trading today. The markets will be closed from Monday to Wednesday for the Lunar New Year holidays and will reopen on Thursday, 29 January 2009.

US stocks ended higher on Monday, 26 January 2009, on news that drug maker Pfizer will buy opponent Wyeth for $68 billion and on a sudden rise in sales of existing homes in December 2008. The Dow Jones industrial average increased 38.47 points, or 0.48%, to end at 8,116.03. The Standard & Poor`s 500 index climbed 4.62 points, or 0.56%, to settle at 836.57. The Nasdaq Composite index increased 12.17 points, or 0.82%, to close at 1,489.46.

Back home, the street was anticipating poor Q3 December 2008 earnings from Indian Inc on high input costs, the credit crunch and high interest rates, coupled with the burden of piled-up inventories. Aggregate results of 660 companies showed 21.70% fall in net profit on 18.60% increase in net sales in Q3 December 2008 over Q3 December 2007.

Foreign brokerage Morgan Stanley in its research report dated 5 January 2009 said earnings of 30 BSE Sensex firms are set for their first quarterly drop in Q3 December 2008, since the data was first made available in 1999. It estimates the BSE Sensex earnings to drop 0.2% year-on-year basis compared with a growth of 5.5% and 20% in the September 2008 and June 2008 quarters, respectively

Foreign institutional investors (FIIs) are in selling mode after an inflow of Rs 1319.10 crore in December 2008. Their outflow in January 2009 totaled Rs 3950.20 crore (till 22 January 2009).

According to provisional data on NSE, FIIs were net sellers worth Rs 522.91 crore while mutual funds bought shares worth Rs 203.98 crore on Friday, 23 January 2009.