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Next week, investors will eye overseas markets and economic data from India on direction cues for Indian equities. However, concerns over continued weakness in the rupee against the dollar will keep the underlying bias negative in the market. Yesterday, the rupee hit a fresh 11-month low of 57.1150 against the dollar ahead of the US jobs data for May.
The data, due later yesterday, is likely to give investors clues on when the US Federal Reserve would start tapering its bond-buying programme as Fed Chairman Ben Bernanke, in his Congressional testimony last month, said monthly asset purchases would slow down as the labour market "improves in a real and sustainable way".
Minutes of the Apr 30-May 1 Fed meeting also showed that several central bank officials were in favour of slowing down the bond purchases as early as this month. The global debate around the tapering of QE (quantitative easing) has intensified and there is general acknowledgement of its negative impact on India's fragile external situation even though the external deficit is better than the recent past.
Combined with brewing domestic political uncertainty, it therefore comes as no surprise that investor sentiment remains hesitant at best. India seems to be at the crossroads of an attractive long-term story, a great micro story and near term challenges the conflict of which way to turn for investors remains unresolved. We remain in the camp that the risk is to the upside in the coming 12-18 months.
On the domestic front, market participants will also eye release of India's industrial production data for April and inflation rate for May, which will offer clues on the Reserve Bank of India's likely rate action and stance at its mid-quarter review on Jun 17. Most market participants expect local indices to trade in a narrow range next week, as traders would refrain from taking aggressive positions in the run-up to the policy review.
As a result, bank shares could remain under pressure next week. Among other stocks, Ranbaxy Laboratories will be in the limelight as the Supreme Court will hear a public interest litigation seeking directions to cancel medicine manufacturing licences issued to the company and prosecute its directors for allegedly selling "adulterated medicines".
