RBI policy, corporate earnings to be key market drivers this week

The Reserve Bank of India's (RBI) monetary policy review meet on Tuesday and corporate earnings from blue chips like ICICI Bank and Bharti Airtel will be the main drivers of markets this week. The sharp depreciation in the rupee and the subsequent corrective measures announced by the government have ruled out any possibility of rate cut.

Key levels on the Sensex would be 19,555 and 19,975 while 5,805 and 5,975 on the Nifty. Markets could rally initially because they fell in the last three past week. On a weekly basis, they may be flat or negatively biased.

Results from FMCG major Hindustan Unilever Ltd were below expectations with revenue growths at a mere seven per cent, lowest in the last three years. ITC too had similar growth issues but part of it was due to the cigarette busi-ness suffering from cost increase and delay in price hikes.

The banking sector seems to be in a bad shape with quality of assets taking a beating. State banks like Union Bank, Punjab National Bank and Canara Bank were at the receiving end and lost sub-stantial ground. Private banks like Yes Bank, Axis Bank, HDFC Bank and ICICI Bank were also at the receiving end.

Asset issues are being raised in private banks as well and it would be crucial to see how ICICI Bank has fared on this front when it declares its quarterly results. The BSEBANKEX lost a significant 4.73 per cent last week.

Foreign institutional investors were small sellers last week with sales of Rs  510 crore in equities and Rs  884 crore in debt. Total sales in equities and debt in July have been Rs  7,500 crore and Rs  11,830 crore so far.

Domestic institutions sold equities worth Rs  790 crore last week and have been net sellers of Rs  1,300 crore this month so far. What is disturbing is that even domestic institutions have turned net sellers in the debt segment for the first time in a very long time. They have been net sellers of Rs  2,366 crore this month so far.

Liquid funds are facing huge redemp-tion because returns have turned nega-tive. Therefore, RBI must ensure that rupee and consequently the bond yield become stable in the immediate term.

(The writer is an investment analyst)

As published in Mail Today dated July 29, 2013