RBI, Fed policy meets in focus

The Federal Reserve's decision on monetary easing at its meeting on 2-3 November 2010 holds key to emerging markets including India which have seen a liquidity driven rally due to huge amount of inflows on availability of cheap funds abroad. Most leading economists expect the Fed to buy between $80 billion and $100 billion worth of assets each month in a new program to stimulate the economy.



The US midterm elections where voters select all members of the House of Representatives and one-third of the Senate are set to be held on 2nd November 2010. Mid-term elections is a main challenge for newly elected Democrat candidate President Barak Obama as his party grapples with the slow pace of reforms after the US recession and change which he promised with his election victory back in 2008.

Closer home, the Reserve Bank of India (RBI) will hold its next quarterly monetary policy review on Tuesday, 2 November 2010. It is widely speculated that the RBI will hike the key lending and borrowing rates by 0.25% each at its next policy review. Rate hikes by the RBI have a direct impact on interest rates offered by banks on loans to Indian companies.

The RBI has hiked the key rates at which it lends to (repo) and borrows from banks (reverse repo) five times this year as the ripples caused by the global economic slowdown died out and headline inflation numbers kept increasing.

Investors will closely watch the second quarter results by India Inc which will run till the second week of November. The results announced so far have been good. Reliance Industries, car major Maruti Suzuki, Sun Pharmaceuticals Industries and Suzlon Energy are due to report earnings on Saturday, 30 October 2010. Gail (India) will announce Q2 results on Wednesday, 3 November 2010.

The HSBC Markit Purchasing Managers' Index, based on a survey of 500 Indian companies, indicating health of manufacturing activity and the business activity index of the services sector for the month of October 2010, are due in the first week of November 2010.

Cement, auto and steel companies will announce their sales figures for the month of October 2010, next week.

While global liquidity remains ample, a section of the market is worried that a strong equity issuance pipeline over the next six months will soak liquidity from the secondary equity markets. Indian companies are estimated to raise about Rs 80000 crore from equity and debt issue over the next three to six months. State-run Power Grid Corp, Steel Authority of India and Indian Oil Corp are some of the companies that are planning large share sales in coming months.

But, the liquidity in secondary equity markets in the immediate short term could rise as Coal India begins to refund excess subscriptions received towards its initial public offering. The IPO of Coal India IPO was subscribed more than 15 times.

The stock market remains closed on Friday, 5 November 2010, on account of Diwali. There will be a special one hour Muhurat trading session on that day between 18:00 IST To 19:00 IST, to mark the begging of the Samavat Year 2067.