Market to remain range-bound ahead of F&O expiry

Last week the US Federal Reserve indicated that it would keep interest rates low for a considerable period even after ending quantitative easing (QE). This would be a big positive for markets like India. It would mean that the flow of dollars will continue into growth markets.

Since the Lehman crisis the US economy has shown plenty of signs of recovery. However, this growth was purely driven on credit and therefore it has to be seen how the US economy performs after the ending of QE. Even if the US is able to stand on its feet - which the  market largely expects - the Federal Reserve will not increase rates anytime soon. It is unlikely that the Reserve Bank of India (RBI) will be in a hurry to cut rates. It will be interesting to see RBI's next move in its monetary policy on September 30.

A rate hike in the US will be bad news for emerging markets. It will see an outflow of money from global markets including India to the US. The market has discounted the US increasing rates by July 2015. The fact that the US is not likely to hike rates in the near future  is the only trigger for  and the precise reason why the Indian market is trading in the positive zone.

This has also seen fund managers expecting the Bombay Stock Exchange (BSE) Sensex to climb higher. In the seventh Business Today-Morningstar asset allocation survey, 80 per cent see the Sensex hovering between 28,000 and 30,000 in the next six months, while no one expects it to fall - if at all it does - below 26,000 points.

In 2008, the Indian market had seen participation from all sources - foreign institutional investors (FIIs), mutual funds, insurance, retail and private equity. This time round it is just the FIIs.

In the last few months, mutual funds have started seeing some positive flows but it is more of high net worth individuals (HNIs) money, while participation from insurance is absent, retail is on the sidelines and private equity funds are finding ways to exit. Until there is greater participation from all segments, the Indian market is still on shaky ground.

With no near-term trigger this market will continue to remain rangebound. Any surprise from the second quarter results from India Inc could act as a trigger for the market. Advance tax numbers of some blue chip companies gives some hope that the September 2014 quarterly results could be positive.

Meanwhile, this week the Indian market is expected to take cues from global events. The market is also expected to remain range-bound ahead of the F&O expiry on Thursday. Last week, the market moved higher with most of the players covering their short positions which helped the BSE Sensex end above 27,000. This week the market will also keep an eye on Prime Minister Narendra Modi's US visit and his meeting with President Barack Obama.