Expect A Range Bound Trade
It was a very volatile week for the Indian equities as various factors like geo political issues and Supreme Court decision came in on the coal blocks de-allocation. What added to the volatility was change in political scenario in Maharashtra assembly polls where all the earlier alliances broke. The Major impact is seen as the BJP-Shiv Sena alliance was broken and both the parties are still hold an alliance in Centre.
However as start a new week, there is some positive news. India’s credit outlook upgrade by S&P helped the equity benchmarks recover in late trade and snapped three-day losing streak on Friday. This was good news as Indian equity Indices fell nearly 3 percent in previous three sessions due to Supreme Court’s coal verdict, deferral of gas pricing and geopolitical tensions. The 30-share BSE Sensex climbed 157.96 points to close at 26626.32 while the 50-share NSE Nifty managed to hold the important support level of 7850, up 57 points at 7968.85, making positive start of October series. However, during the day indices had fallen nearly a percent due to weak global cues.
If we take a look at the S&P rating, Standard & Poor's Ratings Services revised its outlook on India to stable from negative. However, earlier in April 2012, the rating agency had cut India’s outlook to negative. It affirmed 'BBB-' long-term and 'A-3' short-term unsolicited sovereign credit ratings on India. It also affirmed transfer and convertibility assessment of 'BBB+'. “India's improved political setting offers a conducive environment for reforms, which could boost growth prospects and improve fiscal management. Its external position is key credit strength and well-entrenched democratic political system is another credit support,” it reasoned.
The rating agency further said it could raise the rating if the economy reverts to a real per capita GDP trend growth of 5.5 percent per year and fiscal, external, or inflation metrics improve. S&P also revised outlook on six Indian companies to stable from negative, which are Reliance Industries, NHPC, NTPC, Power Grid, TCS and ONGC.
US Equity indices finished a cautious week on an upbeat note. The S&P 500 (+0.9%) and Nasdaq (+1.0%) reclaimed their 50-day moving averages, while the Dow Jones Industrial Average (+1.0%) was able to turn positive for the month (+0.1%).
Asian equity Indices are also showing a mixed picture with Nikkei trading in green with 0.49% gains. However other Asian indices are trading in red, led by Hong Seng, after clashes between police and pro-democracy protesters in the Chinese city. The dollar extended gains and the cost of insuring debt against default jumped after U.S. economic data bolstered the outlook for higher interest rates. While Hang Seng is trading with deep cuts of 2.33%, Shanghai Composite is up 0.23%. SGX Nifty is trading with loss of 0.33%.
Ahead of the RBI Policy announcement tomorrow and then extended trading holidays would surely make the investors cautious. Majority on the street expect a status quo on rate front. However some amount of injection on liquidity is expected. But what one needs to see is what stance RBI takes on Inflation. We expect the Indian equities to open on a weak note and then remain range bound in early hours of trade.