Market seen volatile ahead of RBI's monetary policy

The market is likely to open higher following positive global cues. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicated that the Nifty could rise 22.50 points at the opening bell. However, volatility may arise ahead of the Reserve Bank of India's monetary policy reviewed today, 27 July 2010.



Analysts expect another 25 basis points rate hike from the central bank on Tuesday, 27 July 2010, aimed at anchoring inflation expectations. The Reserve Bank of India (RBI) on 2 July 2010, hiked the repo rate by 25 basis points to 5.5% from 5.25%, with immediate effect. It also hiked the reverse repo rate, at which it absorbs excess cash from the banking system, by an equal 25 basis points to 4% from 3.75%. The central bank said the latest rate hike was a part of the calibrated exit from the expansionary monetary policy.

The RBI is also expected to provide an outline on new banking licenses at Tuesday's quarterly monetary policy review. Finance Minister Pranab Mukherjee had announced in this year's budget that the central bank would consider issuing fresh banking licenses to business houses and also to non-banking finance companies (NBFCs).

The Prime Minister's Economic Advisory Panel on Friday, 23 July 2010, forecast 8.5% growth in GDP in the fiscal year that ends in March 2011 (FY 2011). It expects 4.5% growth in farm output in FY 2011. The headline inflation will be at 6.5% by March 2011, the panel said in a report. The report also said net capital inflows would be $73 billion.

Prime Minister's Economic Advisory Council C. Rangarajan said fertiliser subsidy bill must come down and diesel prices could be freed once inflation begins to come down.

Volatility may also remain high in the near future as traders rollover positions in derivatives segment from July 2010 series to the August 2010 series ahead of the expiry of the near-month July 2010 contracts on Thursday, 29 July 2010.

Ashok Leyland, Glenmark Pharma, GTL, HCL Technologies, Hindustan Unilever, JSW Steel, Larsen & Toubro, Oil India, Patni Computers, Reliance Industries, among others will announce their April – June results today, 27 July 2010.

On the corporate front, the combined net profit of a total of 509 companies fell 14% to Rs 24779 crore on 18.50% rise in sales to Rs 320364 crore in Q1 June 2010 over Q1 June 2009.

Most Asian markets were trading higher today, 27 July 2010, as better- than-estimated new home sales in the US boosted the prospects for global economic growth. The key benchmark indices in Hong Kong, Japan, South Korea, and Indonesia were up by between 0.13% to 0.62%. But, the key benchmark indices in China, Taiwan and Singapore were down 0.38% to 0.10%.

US stocks extended gains on Monday, 26 July 2010 as sentiment was boosted by a surge in new home sales and higher company earnings.

The Dow Jones Industrial Average jumped 100.81 points, or 0.97%, to a two-month high of 10,525.43. The Nasdaq composite index gained 26.96 points, or 1.19%, to 2,296.43, while S&P 500 index added 12.35 points, or 1.12%, to 1,115.01.

Back home, the annual monsoon rains were 7% below normal during the period from 1 June 2010 to 26 July 2010, improving rapidly from a deficit of 16% on 19 July 2010 as the rain-bearing monsoon winds ended a weak phase in the middle of the month.

The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The weather office expects this year's monsoon rains to be at 102% of the long-period average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

The key benchmark indices edged lower on Monday, 26 July 2010, as European stocks moved off highs and as US index futures fell. The BSE 30-share Sensex fell 110.93 points or 0.61% to 18,020.05 and the S&P CNX Nifty fell 30.50 points or 0.56% to 5,418.60.

As per provisional data from the stock exchanges, foreign funds bought equities worth a net Rs 196.32 crore and domestic funds dumped shares worth a net Rs 718.87 crore on 26 July 2010.