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Results, monetary policies hold the key

Key rates in the recent monertary policy spared

Apnaloan.com Research Bureau

10 Aug 2007

The next week is likely to be eventful, but it remains to be seen whether the sentiment stays upbeat. Banks and old-economy companies will announce their results beginning from early next week.

The earnings of the IT sector satisfied the market, with the Sensex maintaining its rising trend during the last week. Some of the cement companies have also performed well.

Apart from the results, the annual monetary policy on Tuesday will also be an important event. According to the market, the Reserve Bank of India may prefer to wait till the full effect of the CRR hike.

The larger policy-related issues to be watched will be the non-food credit growth projection, economic growth and inflation rate projections. Inflation is already above six per cent. In its last policy announced in April 2006, the RBI had said that it would target inflation. It had also projected credit growth rate of 20 per cent compared with 30 per cent achieved during the previous 30 months.

However, panic is now setting in since the target could not be achieved. The finance minister has said that banks need to rebalance their portfolios and reduce loans under the category of personal finance.

The expiry of the first derivatives contract of the financial year will be another crucial issue as bulls dominated the month.

The market delivered returns of around 14 per cent from the lows of April 2.

According to the BSE data, the FIIs were net buyers of shares worth Rs 1,662.88 crore in April, while in the first three months of 2007, they were net sellers to the tune of Rs 1230.43 crore.

The mutual funds invested mostly in debt during the month and are still sitting on cash to the tune of 10-12 per cent. The cash would be invested only if they are convinced about having missed the rally. If the market falls, they would definitely provide support, provided there are convincing signals. HNIs (high networth investors) have made money in the recent rally by following the portfolio managers.

The market may not fall much unless the credit policy gives different signals. If a fall occurs, the market is likely to find support as it has been around the same levels since the last six months.

However, any further rise will be capped as the rally needs new fuel. Scrips such as Reliance are driving the market and a broad-based rally is yet to emerge.

Among the global factors, any move by China to control growth will have its impact on the share prices.

(Courtesy: Business Standard)


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