Weekly outlook: RBI policy, Q3 earnings to set market direction this week

What an expiry for the January series and an even greater and more dramatic fall on the first day of the new series on Friday. All the gains from US President Barack Obama's visit were erased and markets ended in the negative. The previous week had plenty of action and more is stored this week.

The Reserve Bank of India (RBI) will meet for its monetary policy review on Tuesday and is expected to maintain status quo on rates. The surprise cut in repo rates announced about ten days ago will suffice till the Budget is done away with and directions from the government become clear. Therefore, RBI's policy and third quarter earnings of major companies like Bharti Airtel and Hero MotoCorp will set the market direction this week.

The January futures expired on a positive note gaining 778.25 points, or 9.52 per cent. The open interest for the February series was at 17 per cent at Rs 91,725 crore.

It is this sharp build-up in open interest which was the undoing of the market on Friday. The Sensex fell 499 points and the Nifty 144 points erasing gains of three days. Call it global factors or effect of the Coal India Limited (CIL) divestment, but the fact remains that large open interest alone was the reason for the fall.

Shares of public sector banks took a beating and stocks like Union Bank and Bank of Baroda lost 16.8 per cent and 13.3 per cent respectively post results.

Quality of assets and provisions of impairment of assets is the main issue, which concerns banks and their stock performance. The difference in valuation of state and private banks seems to have now become disproportionate and warrants a relook for being too cheap or too expensive.

Foreign institutional investors bought equities worth Rs 6,150 crore last week and Rs 11,600 crore for the month while domestic institutions sold shares worth Rs 1,250 crore for the week and bought stocks worth Rs 250 crore for January. This week will be choppy. Secondly, expectations from the RBI for any more cut in key rates look unlikely. Trade cautiously.

(The writer is an investment analyst) - Courtesy: Mail Today