Though the interest rate differential between US and India is quite substantial and a 25 bps hike in US rates may not have a major impact on the foreign institutional flows into the country. But still a US rate hike may still be a dampener and has a sentimental impact on the markets, including currency and equity. Therefore RBI would like to take a cue from the US Fed before taking any further action on rate cut.
The rise in food inflation in the past few weeks is the other reason why RBI would like to keep rates unchanged.
Meanwhile this week on Thursday, December 3, 2015 all eyes will be on the European Central Bank (ECB) when it meets to decide on interest rates. Market doesn't expect any change in rates but is more interested in the quantitative easing (QE) announcement by the ECB for the Euro-zone. A QE will help boost sentiment in the markets.
Coming back to India and Indian equities, the market will hope that the parliament in the ongoing winter session clear the GST bill . This week the government will announce its second quarter September ended GDP growth numbers.
While FIIs still appear to be long on India on hopes that India will continue to deliver high economic growth, the market will remain volatile as the performance of India Inc is still weak. Until corporate performance doesn't improve which is still couple of quarters away or there is flush of liquidity in the system, Indian market will remain rangebound as it will not have the legs to climb. In such a scenario it would be better for investors to stick to large-cap counters that are generating positive cash flows.