Swapnil Suvarna feels the domestic markets will remain volatile on worries of weakening Indian rupee against the US dollar and slowdown of the industrial growth. However, foreign institutional inflow will be crucial to buoy short spells of rally.
Last week, the Indian markets ended flat as the market had already discounted the interest rate hike by RBI. The Sensex and Nifty ended the week at 16,934 and 5,084 respectively, gaining merely 67 and 25 points each.
The week started off on a negative note due to fears of default by the Greek government and Moody’s downgrade of France's largest banks, Societe Generale and Credit Agricole over their exposure to Greece. Also, dismal July 2011 industrial production growth weighed on market sentiments. According to government data, industrial production grew 3.3% in July 2011 from a year earlier much below market expectations. The data was sharply lower than the 8.8% industrial output growth recorded in June 2011.
The market gained momentum in the latter half of the week on reports of assurances from France and Germany that Europe would stand behind Greece as the nation struggles to cut its debt pile. However, after the RBI hiked the repo and reverse repo rates by 25 basis points, the domestic markets slipped but the negative sentiment was short-lived as investors continued buying, putting the indices in the black.
Week ahead
We expect the domestic markets to remain volatile as further slide in the Indian rupee against the US dollar would boost concerns of high inflation as India’s cost of imports will worsen the current account deficit. In addition, concerns on the impact of RBI’s recent rate hike on weakening the investment cycle will weigh on the market outlook.
However, positive development in global outlook could uplift the market mood. Also, smart bargain buying by foreign investors will be crucial to buoy short spells of rally.
At this stage, experts suggest short- term income funds. In such a volatile market, a disciplined approach of investing in quality equity schemes through SIP will do well.
