RBI rate move, Fed's growth forecast to decide market's course
MUMBAI: The outcome of the Reserve Bank of Indias (RBI) monetary policy review meeting and the Federal Reserves comments on the health of the US economy may determine the stock markets direction in the week ahead. Though the central bank is expected to raise policy rates in its Tuesday meeting, stock investors hope for steeper increases to check inflation that threatens economic growth.
The general expectation is a 50 basis point hike in policy rates and this has been factored in, but unlike in the past, rate hikes of 25 basis points may not draw cheer, said Siddarth Bhamre, head-derivatives, Angel Broking . This is because investors perceive that inflation as a serious threat to the countrys growth, he said.
Wholesale price inflation ( WPI )) rose 8.43% in December from a year earlier after increasing 7.48% in November, led by a 70% jump in onion prices. The RBI is expected to raise repo, the rate at which banks borrow from the central bank, and reverse repo, the rate at which the central bank mops up money supply from banks, by 50 basis points on Tuesday.
The December spike in prices will push the RBI to hike again, even though volatile food-article prices are driving the acceleration in inflation. The RBI will try to pre-empt any possibility of being perceived as falling behind the curve, said Barclays Capital , in its weekly note.
Financial markets will be closed on Wednesday on account of the Republic Day. The US central banks ratesetting Federal Open Market Committee (FOMC), in its 2-day meet ending Wednesday, is expected to keep interest rates unchanged, but investors would closely watch Fed chairman Ben Bernankes comments on the economys prospects and inflation.
With many speculating that the worlds largest economy m! ay limp back to recovery in 2011, investors hope to get a sense of how long will the easy monetary policy by the Fed continue. A US recovery could result in investors in India taking out money from its stock markets, already jittery about the impact of inflation on corporate earnings growth and premium share valuations compared with other emerging markets.
Foreign investors poured in $29 billion (Rs 1.3-lakh crore) into Indian stocks in 2010. So far in 2011, they have pulled out close to Rs 6,000 crore, according to BSE data.
Indias Sensex is valued at a price-to-earnings ratio of 18 times estimated earnings, Chinas Shanghai Composite at 12.7 times, Russias RTS at 7.45 times and Brazils Bovespa at 11 times.
The general expectation is a 50 basis point hike in policy rates and this has been factored in, but unlike in the past, rate hikes of 25 basis points may not draw cheer, said Siddarth Bhamre, head-derivatives, Angel Broking . This is because investors perceive that inflation as a serious threat to the countrys growth, he said.
Wholesale price inflation ( WPI )) rose 8.43% in December from a year earlier after increasing 7.48% in November, led by a 70% jump in onion prices. The RBI is expected to raise repo, the rate at which banks borrow from the central bank, and reverse repo, the rate at which the central bank mops up money supply from banks, by 50 basis points on Tuesday.
The December spike in prices will push the RBI to hike again, even though volatile food-article prices are driving the acceleration in inflation. The RBI will try to pre-empt any possibility of being perceived as falling behind the curve, said Barclays Capital , in its weekly note.
Financial markets will be closed on Wednesday on account of the Republic Day. The US central banks ratesetting Federal Open Market Committee (FOMC), in its 2-day meet ending Wednesday, is expected to keep interest rates unchanged, but investors would closely watch Fed chairman Ben Bernankes comments on the economys prospects and inflation.
With many speculating that the worlds largest economy m! ay limp back to recovery in 2011, investors hope to get a sense of how long will the easy monetary policy by the Fed continue. A US recovery could result in investors in India taking out money from its stock markets, already jittery about the impact of inflation on corporate earnings growth and premium share valuations compared with other emerging markets.
Foreign investors poured in $29 billion (Rs 1.3-lakh crore) into Indian stocks in 2010. So far in 2011, they have pulled out close to Rs 6,000 crore, according to BSE data.
Indias Sensex is valued at a price-to-earnings ratio of 18 times estimated earnings, Chinas Shanghai Composite at 12.7 times, Russias RTS at 7.45 times and Brazils Bovespa at 11 times.
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