RBI review, policy announcements to guide markets

The Reserve Bank of India's (RBI) next move on monetary policy and announcements by the new government are likely to set the tone for the equity market in the week ahead.

Players said major positive news flow on these fronts can help the market break out from the current levels, where the market has been consolidating after the election outcome.

Last week, the Sensex and Nifty, benchmark indices on the BSE and the National Stock Exchange, respectively, ended a three-week winning streak. The BSE Sensex on Friday closed at 24,217, while the NSE Nifty gained 7.9 per cent through the month, to end at 7,229.

"Profit booking, slowing in FII (foreign institutional investor) inflows and lower rollover in June futures saw the benchmark indices fall during the week. Sentiment further got dampened after index bellwether Infosys plunged five per cent," said Amar Ambani, head of research, IIFL.

Technical analysts say the Nifty has started showing signs of weakness, indicating possible downsides ahead. In the week ahead, the Nifty is likely to find support at 7,050-levels and on the upper side it could find resistance at 7,340. If it sustains beyond that, the Nifty could go further up to 7,400-levels, they said.

"The markets might not go up too much from these levels. It is more likely that the Nifty would trade at the 7,000-7,450 levels," said Piyush Garg, executive vice-president, ICICI Securities.

The markets rallied about eight per cent in May after the Bharatiya Janata Party got a simple majority in the general elections. After the results, investors have moved out of defensive bets such as information technology and pharmaceuticals. They've moved into sectors such as capital goods, power, realty and banking, likely to benefit from a revival in the domestic economy.

Next week, the markets will keenly watch the RBI policy announcement on Tuesday, the first monetary policy meet after formation of the new government. "The consensus of the market is that RBI would leave rates untouched. But in the unlikely event that it cuts interest rates, there will be another round of jubilation," said Arun Gopalan, vice-president (research), Systematix Shares & Stocks.

Adding: "The markets will also keep a keen eye on policy announcements by the new government all the way to the Budget."

The week ahead will also see the markets reacting to the April fiscal deficit and gross domestic product numbers announced on Friday after market hours. And, to the MSCI Index rebalancing, to come into effect from Monday.