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In a truncated week, market to remain volatile ahead of the F&O expiry

Going ahead, the trend in the Indian equity market will be dictated by foreign flows and the development in the international market, writes Mahesh Nayak.

twitter-logoMahesh Nayak | September 21, 2015 | Updated 13:10 IST

Mahesh Nayak, Senior Associate Editor, Business Today
Clearly, the US Fed decision of not increasing rates last week raised hopes in the market that the Reserve Bank of India (RBI) would cut rates in the coming monetary policy on September 29, 2015. This saw the market gaining close to 2.5 per cent last week. After falling more than 10 per cent in August 2015, this month the BSE Sensex in the past two weeks has recovered some losses by gaining 4 per cent.

Indian market isn't worried about the US Fed increasing rates. In fact, most of the market has discounted the hike in US interest rates. With the global weakness, especially, the Chinese devaluation has built hopes that even if US hikes rates it would be staggered and this has kept sentiment positive in the Indian market. The reason being emerging markets like India that is heavily dependent on foreign inflows won't see huge flight of capital.

Though Indian market surged on hopes of rate cut, a cut of 25 basis points won't have any huge impact on the Indian economy which is clearly struggling to get back its rhythm of growth. Today, the engine of growth can come only through spending in the right areas of growth like infrastructure and job creation. Depending only on monetary policy will not help in fuelling growth. India can use global weakness to its advantage by focusing on boosting growth and spending in right areas which would also keep foreign inflows attracted towards India and its market.

Meanwhile, a 15 per cent below than normal monsoon will keep RBI guarded on cutting rates. RBI has made its intention crystal clear that its focus is on taming inflation, particularly food inflation. Until food inflation isn't coming under RBI's own estimation they may not oblige the market with a cut in rates. But the market believes that Fed not cutting rates and controlled inflation number will see RBI next week cutting rates by at least 25 basis points.

In a truncated week, the equity market will remain volatile ahead of the F&O expiry on Thursday, September 24, 2015. On Friday, September 2015, the market will remain closed on account of Bakri Eid.

Meanwhile, the market will also remain volatile and weak after the Alexis Tsipras emerged as a clear winner in the Greece election. Last time his inability to flow austerity measures and seek bail-out for Greece will keep the markets jittery as well as worry the creditors.  

Going ahead, the trend in the Indian equity market will be dictated by foreign flows and the development in the international market. This would mean that Indian equity would continue to remain volatile and one should tread cautiously as this market currently doesn't have legs to run. Investors should bet only on companies with strong fundamentals that have a positive cash flow and have the pricing power for its products.

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