Monetary policy uncertainty stills equities

Mumbai: The volatility was to be expected. May inflation data came in at a higher-than-expected 9.06%. That more or less put an end to the debate over whether the Reserve Bank of India will hike interest rates in its mid-quarter monetary policy review on Thursday. The markets have already factored in a 25 basis points increase. There was nothing else in way of positive news flow to excite investors who mostly chose to stay away. After a bout of volatile trading, the benchmark indices closed moderately up.

Sensex 18308.66, 0.23%

Nifty 5500.50, 0.32%

Except for automobiles, consumer durables and oil& gas, sectoral indices closed up.

BSE Capital Goods 13493.67, 1.03%

BSE Auto 8651.7, -0.19%

BSE Oil & Gas 9358.15, -0.77%

BSE Consumer Durables 6865.17, -1.42%

While the RBI continues to focus on reining in rising prices, the market hopes for growth. And that is not forthcoming. The recent spate of economic data - factory output, purchasing managers’ index, gross domestic product numbers – all point to a moderation in growth. While commodity prices have been declining since May, they are still at higher levels compared to a year ago. Thus, companies’ profits too will be under pressure for the next couple of quarters. In other words, markets may continue to behave like this for yet some more time.