Indian Markets Outlook for the week - 16.12.2013 - 20.12.2013

[K.Karthik Raja]

Indian Markets Outlook for the week - 16.12.2013 - 20.12.2013
www.rupeedesk.in

The Reserve Bank of India's mid-quarter review of monetary policy and US Federal Reserve's policy review meeting will set the tone for the equity market next week. Trade will be subdued till Wednesday, when RBI and the Fed announce their respective policies. A 25 basis point hike in repo rate by the RBI is on the cards, while the Fed may start trimming its $85-bln-a-month bond-buying programme by $10 bln. If the Fed announces the quantum and timeframe of winding down stimulus, it would result in negative reaction not just in India, but also across the world. More importantly, the currency movement will also have a bearing on the market. Seeing the rupee-dollarequation, we could see more pain, which will translate into weakness in the equitymarket. Yesterday, the rupee ended at an over one-week low at 62.1200 to a dollar. On Thursday, the Indian unit had closed at 61.81. A 25 bps repo rate hike would be priced in by Monday, but others said the market could nonetheless have a knee-jerk reaction to RBI's policy announcement. On Monday, eye the release of inflation rate based on the Wholesale Price Index for November. A Cogencis poll showed that WPI inflation for November is likely to remain unchanged from the previous month at 7.00%. A technical bounce back on Monday as indices have fallen for four consecutive session, but its sustainability is unlikely. The pullback would be minor but unsustainable and will succumb to profit booking at higher levels. The National Stock Exchange's 50-share Nifty is seen moving in the range of 6100-6300 next week. A higher-than-expected repo rate hike by the RBI or a more than estimated cut in stimulus by Fed would see the Nifty falling below 6100. In that case, support is seen between 6000 and 6050. Yesterday, indices ended at a one-week low on concerns of an interest rate hike by the RBI after disappointing retail inflation data, which rose to a lifetime high of 11.24% in November and industrial output in October which contracted 1.8% to a four-month low. The National Stock Exchange's 50-share Nifty ended at 6168.40, down 68.65 points or 1.1% from Thursday. The S&P BSE's 30-share Sensex ended at 20715.58, down 210.03 points or 1.0%, and MCX Stock Exchange's SX40 ended at 12315.20, down 117.37 points or 0.9%. The scenario at market close yesterday was in contrast to Monday, when the indices hit lifetime highs on results of state assembly elections. Indices have lost roughly around 1.5% from last Friday's closing. The reaction on Monday was sentimental but a sizeable and meaningful uptick needs the backing of fundamentals, which are not there now. The current situation, information technology, pharmaceutical, fast moving consumer goods and select media and entertainment stocks will perform well in the week ahead.