Weekly Newsletter - June 26 2010

While the die-hard reformist would hail the Centre's decision to free petrol prices and hike prices of other fuels, the inflation hawks would frown upon the move. Clearly, the EGoM action will have more of a long-term impact on the economy but poses a short-term risk in terms of a spike in inflation. The next event to watch out for in this context will be the RBI's policy review. Whether the central bank goes for a rate hike before the scheduled meeting is anybody's guess. The RBI is also in a bind as the markets are also currently going through a temporary liquidity crunch.



Whatever the central bank does will surely have some bearing on sentiment, though the markers may eventually absorb the bad news, especially if earnings turn out to be strong and FII inflows remain robust. Global developments will continue to be watched keenly. Among the key economic data to follow next week will be the US non-farm payroll numbers. Markets will also take into consideration noises made by world leaders at the weekend's G20 summit in Canada. Overall, the outlook remains positive for the Indian market given its relatively better macro picture vis-à-vis other markets. Having said that, the fact that the key indices had solid gains in June may just hold the bulls back a little bit.