F&O expiry, RBI policy to decide market sentiment

The much-awaited RBI monetary policy review, scheduled for January 25, is likely to set the tone for the stock markets in the coming week, say experts.

After a volatile week of trading that saw the Bombay Stock Exchange bellwether Sensex end with modest gains of 0.77 per cent at 19,007.53 points, the market observers expect another week of see-saw trading.

"After two successive weeks of heavy losses, the bulls managed to retrieve some of the lost ground this week. But the bears continue to fight and are in no mood to give up easily. The tug of war has led to increased volatility," said IIFL Head of Research Amar Ambani.

He added, "In the coming week, all eyes would be on two big events; the F&O expiry and the RBI monetary policy meet. They would set the tone for Indian equity markets in the near term at least along with the quarterly results and global cues."

With the inflation having touched 8.43 per cent in December from 7.48 per cent in the previous month, the market is expecting the RBI to hike key policy rates by 25 bps in its policy review this week, along with a cumulative raise of 100 bps for the calendar year 2011.

"There might be another rate hike by the RBI later this month and markets don't generally like rising interest rates, as it increases borrowing costs and crimps demand," said an analyst.

According to market observers, Dalal Street will also take cues from the third quarter results of the country's most valued firm, Reliance Industries, which reported 28.14 per cent rise in net profit for October-December quarter.

Corporate giant Reliance Industries posted a net profit of Rs 5,136 crore, which even though 28.14 per cent higher than the previous quarter is still below the market expectations.

"We may see a fiery week as the street would react to the third quarter numbers of RIL on Monday, and the RBI policy meet on Tuesday," said Bonanza Portfolio Vice-President Avinash Gupta.

Alex Mathews, Research Head of Geojit BNP Paribas Financial Services said the month of January so far had seen weak trading with the dearth in buying from FIIs.

He said the market was heading towards another lacklustre week, as there was unlikely to be any great surprise before the F&O expiry next week.