Market to Remain Cautious, Eyes US Fed, Europe

Indian equities may have shrugged off the latest increase in policy rates, but the outlook for the markets remains cautious amid concerns over stubborn inflation and the Reserve Bank of India’s continued hawkishness. Domestic markets will keenly watch the US Federal Reserve’s meeting this week and also developments in Europe for cues. Though the market had already factored in a 25-bps hike in the repo rate, RBI’s lingering aggressive stance baffled participants who are likely to take a cautious view on equities .
Globally, the markets will look forward to the outcome of the US Federal Reserve’s meeting scheduled for Tuesday and Wednesday. There are expectations that the US policymakers might provide further stimulus to the economy. On the other hand, the world’s leading central banks have decided to offer funding support to bail out European banks, thereby easing concerns about Greece’s fiscal woes leading to collapse of the financial system in the region. All these factors kept the global markets, including India, more or less firm, triggering a three-day rally in the Sensex last week.
According to me, in the next few days the market will closely track developments in Europe and the US. “High crude prices remain an issue of concern. Any development on the reforms front will be a positive for the market. “Investors should adopt a stock-specific approach with a medium-to-long-term perspective.
Amid uncertainty over how soon the rate cycle will peak out, most brokers predict a weak outlook for rate-sensitive realty, banking and automobile shares, which moved up despite the Friday rate move. Unrelenting inflation, despite consistent rate hikes, has shattered hopes of the interest rate cycle coming to an end soon which will keep the sentiment for ratesensitive stocks subdued. “Despite aggressive monetary tightening in the last one-and-ahalf years, WPI inflation stayed above 8% in the past 20 months. The recent electricity tariff and petrol price hike are likely to add to overall inflation.
Some action could also be seen in companies which have announced higher advance tax payment for July-September, in anticipation of better earnings growth for the period.