Investors hope for rate cuts as uncertainty looms

With clouds of uncertainty returning to global stock markets amid renewed concerns over Europe's financial health and slowing growth in the US and China, the fate of Indian shares this week would largely hinge on the central bank's monetary policy, March inflation data and quarterly earnings.

The key stock market indices, the Sensex and the Nifty, each lost more than two per cent last week, as Friday's sell-off on the back of tepid Infosys guidance and weak European markets erased gains seen earlier in the week.

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The 30-stock Sensex ended the week at 17,094.51, while the 50-stock Nifty closed at 5,207.45.

Investors would keenly watch March wholesale price index data on Tuesday, expected to come in at 6.7 per cent, according to a Reuters poll.

The Reserve Bank of India's annual monetary policy, on Tuesday, would also be crucial for the stock market's direction.

Most expect the central bank to cut its key policy rate by 25 basis points, for the first time in three years.

"The RBI is likely to cut the repo rate by 25 basis points while keeping cash reserve ratio unchanged.

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"Our expectation is based on the assessment that investment activity is in deep slump and demand-led inflationary pressures have receded meaningfully," Kapil Gupta and Toshi Jain of Edelweiss Securities said in a note to clients.

On earnings, quarterly results from HDFC Bank (April 18), ACC and Ambuja Cements (April 19) and Reliance Industries (April 20) will be important for the Indian stock market.

On technical parameters, the stock market is looking a bit weak, analysts say. "The odds do seem higher for a further fall in the markets," said Subash Gangadharan, technical analyst at HDFC Securities.

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"Traders will need to watch if the Sensex/Nifty can hold above the supports of 16,921/5,136. If these supports fail to hold, then the Sensex/Nifty could fall towards the next major supports of 16,828/5,076," he added.

Another major worry for the market is subdued inflows from foreign investors, one of the major drivers of Indian shares.

After pumping in Rs 44,037 crore (Rs 440.37 billion) into Indian shares in the first three months, net purchases by foreign institutional investors so far this month is just about Rs 322 crore (Rs 3.22 billion), according to data compiled by the BS Research Bureau.  

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Among the key global concerns, rising cost of insuring Spanish debt against default has once again increased concerns about Europe's financial health.

"The euro zone crisis is not over, and the establishment has yet to come up with a credible fiscal union, which provides a credible long-term foundation for monetary union," said Christopher Wood, equity strategist at CLSA Asia Pacific Markets, in his Greed & Fear weekly newsletter.

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Global investors would also watch for the G20 and IMF meetings on Thursday and Friday, which might consider extra funding to meet crisis needs, following the boost to the euro-zone debt firewall.

In the US, data on retail sales for March, housing starts and existing home sales would give indications about the economy's health after a weaker-than-expected jobs data on Friday cast doubt on the strength of the recovery.

The earnings calendar would be heavy, with 86 companies in the Standard & Poor's 500 expected to post results next week, according to a Thomson Reuters Director's Report.