RBI policy to set market direction

MUMBAI: Weakness in global markets coupled with domestic rate hike fears are expected to keep investors to the sidelines this week. Analysts said investors were unwilling to take a call on the market direction and have chosen to ignore even the positive triggers.

“Its quite a baffling situation at the moment, and it’s difficult to say where the market is headed. Results could have been a major driver, but that does not seem to be the case so far,” said Arun Kejriwal, director of investment advisory, KRIS.

Investors will keep a close watch on statements from the Reserve Bank of India (RBI) on inflation and interest rate expectations in its policy meeting on Tuesday.

The central bank is seen raising short-term interest rates for the third time this year by 25 basis points, in its efforts to curb inflation.

On charts, the market is pointing to a volatile trend, with a negative bias, ahead of the July series derivatives expiry on Thursday.

“Though the Sensex has psychological support at 10,000, that could be pierced and the index could fall to 9700,” said Alex Mathews, head of derivatives and technical research, Geojit Securities. The Sensex, which closed at 10,085.91 on Friday, has fallen close to 6% last week.

Mathews does not rule out a minor rebound this mid-week, due to short covering in the derivatives segment in event of the expiry. In July, investors have created short positions in the Nifty futures contracts as a hedge against their cash market position, in anticipation of a sharp fall. “In case of a rebound due to short covering, the Sensex will face strong resistance at 10400 levels,” Mathews said.

On Friday, US markets ended weak, with the tech-heavy Nasdaq composite closing 0.9% lower at a 14-month low. Crude oil for September delivery, which rose to a record high of $78.40 a barrel last week, closed at $74.50 a barrel on the New York Mercantile Exchange.