RBI policy to dictate market movement next week

Equity markets closed the week with a bang as the National Stock Exchange (NSE) Nifty rose 1.1 per cent on Friday to close at 8,588 while the Bombay Stock Exchange (BSE) Sensex rose 0.9% to 28,694.

The markets were buoyed by the Organisation of Petroleum Exporting Countries'(OPEC's) decision not to cut crude oil production despite falling prices.

Lower oil prices mean India's current account deficit will shrink. The Nifty ended the week 1.31% higher than the previous week's close of 8,477, while the Sensex closed 1.27% higher than the previous week's close of 28,335.

The week started on a strong note as the European Central Bank began buying asset-backed securities, expanding its quantitative easing programme, and China cut benchmark rates for the first time in since July 2012.

Back home, investors welcomed the government decision not to appeal against the Bombay High Court decision in favour of Shell and Vodafone in a transfer pricing case. The industry and markets said this would help India gain the faith of foreign investors.

"The decision is a welcome relief not just for Shell but for all MNCs which have faced the adjustment on share issuance. It is significant to note that the court did not hesitate to exercise its extraordinary power to issue a writ where appeal remedy was available in this situation as the court felt that the tax department clearly exceeded its jurisdiction to bring to tax a capital transaction," said Mukesh Butani, Managing Partner, BMR Legal.

Among Sensex stocks, major gainers during the week were BHEL (12.05%), Hindalco Industries (8.59%), Mahindra and Mahindra (6.2%), Tata Power (5.56%) and SBI (5.38%).

The losers included ITC (-3.52%), L&T (-1.5%) and Bajaj Auto (-1.32%). ITC was hit by the government's decision to ban sale of loose cigarettes.

The buoyancy in large-cap stocks was not reflected in mid-cap and small-cap stocks. The BSE Mid Cap index rose 0.73% while the Small Cap index ended the week 0.5% lower than the last week's close.

Among  sector indices, the BSE Realty jumped 3.56% while the Bankex rose 2.56% during the week. PSU bank stocks gained on Friday as the government said it aimed to bring down its holding in PSU banks to 52%.

The mood was upbeat in the sector ahead of the Reserve Bank of India (RBI) policy on December 2 .

"Banking stocks were in demand on hope of rate cut by the RBI in the next policy meeting.  The Bank Nifty closed higher by around 532 points (on Friday). Good demand and short covering helped the index outperform the broader market," says Alex Mathews, head of research, Geojit BNP Paribas Financial Services.

Next week, a major trigger will be the RBI policy on December 2. Most analysts feel the central bank is unlikely to cut rates despite the fact that GDP growth slowed to 5.3% in the second quarter of the current financial year from 5.7% in the first quarter.

"The fiscal policy will remain tight, complementing the tight monetary policy maintained by the RBI. Moreover, notwithstanding falling crude oil prices and record-high equity markets, Indian Rupee (INR/USD) has weakened gradually towards 62, indicating potential future volatility. This makes it even more unlikely for the central bank to cut the policy rate next week and dilute the effects of ensuing fiscal tightening," Dhananjay Sinha, head, Institutional Research, Emkay Global Financial Services Ltd.