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Benchmark stock indices are seen trading with a positive bias in the week ahead due to the National Stock Exchange's 50-share Nifty ending above the important mark of 5800 points. However, important indicators for the market will be the mid-quarter review of monetary policy for 2013-14 (Apr-Mar) by the Reserve Bank of India on Monday, and the US Federal Reserve's two-day policy meet which begins Tuesday. We think yesterday's low WPI (Wholesale Price Index) inflation print adds to the case for monetary easing, but significant weakness in the INR (Indian rupee) remains an impediment for the Reserve Bank of India (RBI) to ease rates at its 17 June monetary policy meeting. While we maintain our expectation that the RBI will cut the repo rate by 25 bps at the meeting on 17 June, we note an increased risk of a pause given the INR weakness.
Headline WPI inflation rate fell to a 43-month-low of 4.70% in May from 4.89% in April. Rupee hit an all-time intraday low of 58.98 earlier this week. It recovered to close at 57.51 yesterday. The bank had earlier expected the RBI to cut repo rate by 25 basis points at its mid-quarter policy review on Monday. It said, The RBI may not want to court controversy by cutting rates when the INR (Indian rupee) is just stabilizing after cutting 75bps. If the RBI cuts interest rates by 25 basis points or more on Monday. Thereafter, investor focus will be on the US Fed. Investors globally would keenly await Fed Chairman Ben Bernanke's statement on when the US central bank is considering starting curtailing its bond buybacks.
Jet Airways India is likely to see a price correction as the Foreign Investment Promotion Board deferred a decision on the sale of a 24% stake in the company to Etihad Airways, seeking more ownership details. A dealer also expects strength in information technology stocks if the rupee weakens further.
