A positive bias is expected to rule the Indian equity markets in the coming week, with investors hoping for a rate cut by the apex bank, passage of key bills in parliament and more rainy days ahead, experts said on Sunday.
"The most important trigger for the markets is the Reserve Bank of India's (RBI) monetary policy review. A cut in interest rates will restore investors' confidence and open the flood gates of funds," Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.
"Even if there is no rate cut, the knee-jerk reaction will neither be that disappointing nor long-lasting, as it has also been factored in by the markets."
According to Nevgi, markets will closely go through the language used by the RBI Governor in his assessment of the economy to give further cues on the future of rate cuts.
"The language on the Indian economy, oil prices, monsoon, inflation and the US rate hike will be closely monitored as it will give the guidance to future RBI moves," Nevgi predicted.
The RBI's monetary policy review is scheduled for 4 August.
India Inc. expects a rate cut by the RBI during this review. Indian industry feels that the upcoming review might be the last chance to cut rates in this calendar year before inflation spirals up and the US Fed decides on its own rates in September.
Anand James, co-head, technical research desk, Geojit BNP Paribas, told IANS that the RBI's views on the government's draft financial code which proposes to clip its autonomy will also be closely watched.
The code, if implemented, will undermine RBI's ability to rein-in inflation. This will also discourage investors in taking risks in the future as RBI has been viewed by many as an anchor for financial stability in the country.
Another major trigger, cited James, will be the government's ability to pass key bills during the monsoon session.
"Parliament's logjam has cast a shadow over the government's future ability to pass economic reforms. It has also put a question mark over the fate of key legislation like the GST (goods and services tax) and the land bill," James told IANS.
"Thus, it is very important for Parliament to get back into business and end this political logjam."
Dipen Shah, head of private client group research with Kotak Securities, pointed out that the markets expect the government to be in a position to pass the GST bill soon, as the union cabinet has approved a revised version of the legislation.
"Passage of the bill will be a positive for the market. Government is making all efforts to pass the GST Bill in the current session," Shah told IANS.
Meanwhile, analysts warned that the enormous erosion of investors' wealth in the Chinese markets, weakening of the rupee, oil and global commodities' prices might have a negative impact on the markets in India.
The continuous slide in the Chinese markets in the last two months has eroded nearly 40 percent of the stock value and caused panic. More importantly, the inability of the Chinese government, fund houses and brokerage firms to arrest the fall led to global sell-offs.
Investors will be eagerly looking out for more rainy days ahead.
"Markets will follow the progress of monsoon closely as it would be a key consideration for the RBI in its rate decision in the upcoming monetary policy review," Vaibhav Agarwal, vice president and research head at Angel Broking, told IANS.
"Monsoon has progressed well and the overall performance might even be above expectations. This will give a clear indication of a healthy rural demand scenario, crop output and better rate cut hopes as inflation would be contained due to good rainfall activity," Agarwal added.
