RBI, US Federal Reserve to keep markets volatile - Economic Times

MUMBAI: Stock markets are likely to remain choppy this week ahead of the Reserve Bank of India's mid-quarter review of monetary policy and a meeting of the US Federal Reserve that could decide on tapering its stimulus programme.

Experts say RBI could raise rates by 25 basis points at the monetary policy review on Wednesday, while the Federal Reserve could give some direction on the timing and quantum of tapering at its two-day meet beginning Tuesday. "I expect RBI to hike rates by 25 basis points on December 18 credit policy meet," said Abhay Laijawala, managing director and head of research at Deutsche Equities. "Our US economists believe that the economic data points are sufficient enough for the Federal Reserve to begin gradual tapering. However, more than tapering, the markets will look at methodology and quantum of tapering."

Two key data - retail inflation and industrial output - released on Thursday after the close of trading threw up disappointing numbers for the market. While the Consumer Price Index (CPI) for November rose higher than expected to 11.74%, the Index of Industrial Production (IIP) for October contracted for the first time in four months to 1.8%. "The odds of rate hike have increased substantially post sharp uptick in the November CPI numbers. If wholesale inflation data also shows a material uptick, then it would create an outside chance of 50 basis points rate hike," said Amar Ambani of IIFL.

The Sensex lost 280 points, or 1.34%, in the week to Friday while the 50-stock Nifty fell 91 points, or 1.46%, during the period. "Nifty holds immediate support at 6,100 levels. The recent fall in the markets has pushed some index majors in oversold territory. Hence, most indicators are in favour of technical rebound in the markets," said Jayant Manglik of Religare Securities. "We cannot ignore the possibility of excessive choppiness in the markets this week. Investors should maintain caution and avoid overleveraging. Selected pharma and IT counters are looking safe haven bets while interest rate-sensitive sectors may cause maximum volatility," added Manglik.

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