Global cues likely to direct Dalal Street

Domestic stock markets are likely to pursue a wait and watch policy in the week ahead with investors taking cues from global markets, analysts say.

Last week was marked by the third biggest meltdown of over 600 points at the benchmark Sensex, following the US mortgage crisis which had made investors and traders jittery.

However, the market recovered in the next of the last two sessions ending the week on a sober note.

The bellwether index ended the week at 15,138.40 points after adding 122.51 points during the week despite the sharp plunge of 615.22 points on August 1.

The direction to be taken by domestic markets may depend on global trends, which in turn would take cues from the outcome of the US federal reserve's policy meeting scheduled for Tuesday, a market observer said.

The outcome of the proposed US federal reserve meeting would most probably continue to have a direct bearing on the functioning of domestic bourses, an analyst said, adding that investors may see the same situation which they witnessed in the previous week.

The Indian bourses have been closely tracking global markets for the past few days after US subprime worries heightened. Other Asian markets have also been rocked by fears that the fallout from the US subprime mortgage crisis and tighter lending conditions would ultimately hit the US economy.

However, a report from the global credit rating agency Moody's said that the US subprime mortgage crisis has 'limited' impact for Asian banks due to their lower exposure in the American market.

Foreign Institutional Investors made a net purchase of Rs 23,872.40 crore on the bourses in July, while for the first three days in August they have made a net sale of Rs 968 crore.

The Reserve Bank in its July 31 review of monetary policy raised the Cash Reserve Ratio from 6.5 per cent to 7 per cent, but kept other key rates unchanged. However, the Central Bank warned that "inflationary pressures remain and are more persistent than before, along with high commodity and asset prices."

Inflation fell to 4.36 per cent during the week ended July 21 from 4.41 per cent the previous week due to decline in prices of food items like pulses and fruits.

RBI Deputy Governor Rakesh Mohan advised bankers that inflation concerns remain and vigil must continue. He said the RBI is not comfortable with high prices as inflation, excluding energy prices, is at 6 per cent, above the 4-4.5 per cent medium-term target of the bank.