Stock markets in India are likely to pursue a wait-and-watch policy in the week ahead with investors taking cues from global markets, analysts say.
Last week was marked by the third biggest decline—of more than 600 points—at the Bombay Stock Exchange’s benchmark index, Sensex, following the US mortgage crisis, which had made investors and traders jittery.
However, the market recovered with the last two sessions ending the week on a sober note.
The bellwether index ended the week at 15,138.40 points, after adding 122.51 points during the week, despite the sharp dip of 615.22 points on 1 August.
The direction to be taken by domestic markets may depend on global trend, which in turn would take cues from the outcome of the US Federal Reserve’s policy meeting scheduled for Tuesday, a market observer said.
The outcome of the Federal Reserve’s meeting would most likely continue to have direct bearing on the functioning of domestic bourses, an analyst said, adding that investors may see the same situation they witnessed in the previous week.
Indian bourses have been closely tracking global markets for the past few days, after US subprime worries heightened. Other Asian markets have also been rocked by fears that the fallout from the US subprime mortgage crisis, and tighter lending conditions would ultimately hit the US economy.
However, a report from the global credit rating agency Moody’s Investors Services said that the US subprime mortgage crisis has ‘limited’ impact for Asian banks because of their lower exposure in the American market.
Foreign institutional investors made net purchase of Rs23,872.40 crore on the bourses in July, while for the first three days in August, they have already made net sale of Rs968 crore.
The Reserve Bank of India (RBI) in its 31 July review of monetary policy raised the cash reserve ratio from 6.5% to 7%, but kept other key rates unchanged.
However, the central bank warned that “inflationary pressures remain and are more persistent than before, along with high commodity and asset prices.”
Inflation fell to 4.36% during the week ended 21 July, from 4.41% the previous week on the back of decline in prices of food items such as pulses and fruits.
RBI deputy governor Rakesh Mohan advised bankers that inflation concerns remain and vigil must continue. He said RBI is not comfortable with high prices as inflation, excluding energy prices, is at 6%, above 4-4.5% medium-term target of the bank.