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Direction oriented outlook

May 12, 2001

The BSE Sensex gained 45 points (1.3%) this week, which saw the FIIs invest nearly Rs 2 bn. The bourses were listless through the week as if they were seeking a direction. The absence of triggers was largely responsible for this. But the coming week is full of activities that could make or mar the prospects of the bourses. The Sebiís meeting on Monday is one such development. If the regulator does decide to ban carry forward it will be a positive development in the longer term. Some of this apprehension about the ban on carry forward has already been factored in. If the ban does come the bourses are likely to react negatively in the initial period. However, like it happened with rolling settlements, the markets are likely to get used to it.

Another development that will be watched keenly is on the interest rate front, both in India and the US. The US Fed meeting is scheduled the coming week and indications are that the US is in for another rate cut. That may spur sentiment in the US markets in the short term, but it will also signify that the US economy is in serious trouble. With Europe cutting interest rates last week it became clear that western countries are facing a difficult economic situation. However, some of the recent data on consumer spending and unemployment figures in the US is encouraging.

Back home, the RBI is under a lot of pressure from corporate India to cut interest rates to boost the economy. With the government starting FY02 on a negative footing, it to must be looking at borrowings with lower interest. Besides these reasons, if the US does go in for a rate cut at the Fedís coming meeting, then it might encourage the RBI to cut interest rates without running the risk of rupee weakening against the dollar.

Then letís come to politics. The assembly election results will be clear in the coming week. If the incumbent government and its allies do well it may strengthen the ĎTehelkaí weakened centre. However, if the opposition combine has the upper hand, then the regional parties in the incumbent government may start hedging their bets elsewhere. Political weakness at the centre spells negativism for the bourses in the long run.

Last but not the least is the monsoon forecast scheduled this month end. A favourable monsoon is the most concrete trigger for the bourses to move northwards. In short its time to wait and watch.

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