A series of domestic economic data is keenly awaited this
week based on which RBI will decide its stance on interest rate which will set
the tone of the market trend
Last week, the Indian markets ended
flat with the Sensex and Nifty closing at 16,867 and 5,059 respectively gaining
merely 46 and 19 points each.
The week started off on negative note
on fresh worries over the global slowdown after dismal US jobs data and
slowdown in India’s services sector growth for August 2011 was reported.
However, the negativity was short-lived led by a series of positive news. The Moody’s
Investors Services affirmed BAA3 rating for India's foreign currency government
debt and its BA1 rating for local currency debt. Also to help investors shield
their investments from mark-to-market volatility, RBI is looking to re-launch
inflation-indexed bonds (floating rate bonds linked to the inflation rate).
Moreover, the annual food inflation fell
to 9.55% in the week ended 27 August 2011, from 10.05% in the previous week
while the fuel inflation was at 12.55%. This made the market gain further
momentum. Following the release of inflation data, RBI said that a change in
anti-inflationary monetary stance will be motivated by signs of a sustainable
downturn in inflation.
However, on Friday, 9 September the
domestic markets pared its three day gain after US Federal Reserve chairman Ben
Bernanke gave no signal on fresh stimulus for the economy in his much awaited
speech. Also, India’s exports slowed sharply as it grew 44.2% in August 2011
from a year earlier, totaling $24.3 billion. This news too weighed negatively
on the investor stance.
In addition, RBI governor Subbarao raised
concerns on excess supply of gilts in the secondary market. To resolve this
concern the governor said banks need to set aside minimum mandatory amount of
deposits to invest in government bonds.
We expect the domestic markets, to
continue its staggered trend as data on industrial production for July 2011 and
headline inflation for August 2011 is expected this week. This data will provide
a clear picture of RBI’s stance on interest rate at its mid-quarter monetary
policy review on 16 September 2011.
always, we suggest your investors to invest in good quality equity schemes to
moderate the impact of market volatility.