Markets to be volatile this week in view on RBI and FED events: Dipen Shah

In a chat with ET Now, Dipen Shah, Senior VP-PCG Research, Kotak Securities shares his market outlook. Excerpts:

ET Now: We have had four days of a correction in the markets and there is of course, a mid-week event. How do you expect the benchmark indices to shape up this week?

Dipen Shah: Overall, the markets we believe, will be volatile during this week. The last week has been pretty much unexpected for the markets, both on the global and the domestic front. CPI inflation was at 11.5%, which was very unexpected and that has caused some concerns for the markets. Also concerns have also started coming back on the larger event of the FED taper.

Going ahead, if we speak from a slightly medium to long term perspective, we feel that it is only growth rates and the core fundamentals which will be driving the markets, because we understand that the long term growth of the market is largely dependent on GDP growth and to that extent, we would say that the core fundamentals will work over the markets and that is what the markets will be looking at over the medium to long term.

ET Now: In the near term though, do you think this week is going to turn out to be a volatile one, or would it be weak, if the RBI does choose to hike rates?

Dipen Shah: As far as the RBI is concerned, we believe that a 25 basis point hike is coming. If you read the inflation data which came in last week, the CPI numbers have been largely unexpected, but if you look within the data, we see that the vegetable prices had gone up quite sharply, by about 60%-odd and in the current month, news reports are suggesting that we are seeing a softer trend in the vegetable prices.

So the 60% increase in the vegetable prices could actually come off a bit and that is something which the RBI can probably take note of. Also we have seen that the inflation was concentrated in a few states and there were some natural and one-off factors which actually had taken place. So maybe these, the RBI could take note of. Today’s WPI data also will be important but largely, what we understand is that the RBI will have to manage inflationary expectations and because of that, RBI may actually raise increase interest rates by 25 basis points.

Also importantly, as compared to the last time, the RBI will be announcing its policy before the FED announces its and to that extent, it will be an important thing to watch out for and very interesting to see what the RBI does.