Indian markets slipped 2% last week on negative global cues and rising food inflation. Swapnil Suvarna expects the markets to continue to remain weak ahead of RBI’s half-yearly review of the monetary policy on Tuesday, 25 October 2011.
As expected, the Indian markets remained volatile last week with the Sensex and Nifty closing at 16,786 and 5,050 respectively, declining 297 and 82 points.
The week started off on a negative note led by index heavyweight Reliance Industries which fell almost 4% on reports that the firm would suspend oil and gas drilling operations for an unspecified time until an internal valuation of its exploration and production strategy. China’s slowing economic growth, concerns about its mounting bad-debt risks, high debt levels and cash problems in rail & road construction also weighed on the market sentiment.
The Indian markets gained some momentum after finance minister Pranab Mukherjee said that India was firmly on track to achieve annual economic growth of 8-9% in the medium-term. Unconfirmed reports about Germans and French agreeing to expand the sovereign bailout fund to 2 trillion euros ($2.8 trillion) gave further momentum to the market.
This uptrend was short-lived after the Indian government data showed that the annual rate of inflation increased in early October. Moreover, the Indian markets along with its Asian peers slipped into the red-zone ahead of a meeting of European Union leaders in Brussels on Sunday 23rd October 2011 to find a solution to the region’s debt crisis.
Week Ahead
We expect the Indian markets to remain weak as the RBI is seen delivering another rate hike at its half-yearly review of the monetary policy on Tuesday, 25 October 2011 as inflation continue remain at uncomfortably high level. Positive global developments will buoy the market sentiment.
The markets will also remain volatile as traders roll over positions in the F&O segment from the near-month October series to November series as the October derivatives contracts expire on Tuesday, 25 October.
During this stage of uncertainty in the equity markets, continue suggesting your investors to invest in quality equity funds and in short-term debt funds to benefit from the almost certain RBI hike.
