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Uncertainty hangs over rate cut

Uncertainty hangs over rate cut
Highlights

Needs to be a bit careful in new buy decisions The Sensex has been surging ahead on hopes of interest rate-cut in RBI's monetary policy meet slated...

Needs to be a bit careful in new buy decisions bussThe Sensex has been surging ahead on hopes of interest rate-cut in RBI's monetary policy meet slated to be held on May 3, although it received a minor setback on Friday last week and closed down by 120 points. However, at its close of 19287, the benchmark index was up 270 points on weekly basis. The Sensex thus continued to rise amidst most negative factors that the economy is passing through. The Indian markets could perform bullish mainly due to better than expected corporate numbers. However, the hopes of a significant rate cut by the RBI was the most effective force that drove the markets above 19,000 mark in the last couple of weeks. The BSE Index which resurfaced above 19000 mark in the previous week and closed at 19016 on Friday of that short one due to a public holiday, entered the new week with a cautious attitude on Monday of this week and opened at 18990, lower than the previous close but immediately picked up as FIIs started mopping up on select scrip with the bear operators turning frantic buyers in view of the fast approaching last day of the April series for futures and options trades. The short covering by bears then lifted the market barometer to a fresh new high of 19385 in early trade on Friday but soon after the news of the chit fund scam involving Caeser's wife (P Chidambaram) and the CBI's report that the Law Minister was shown the report of the coalgate findings, rocked the markets with immense selling pressure from the bull operators thus making it easier for the bears to cover their short positions at prices much below they had expected to be on Friday, the last trading day. The weakened trend in the markets is now expected to percolate in the new week and likely to negatively impact the buying decisions by the bulls and also small investors as when the RBI's new monetary policy being a few days away, it would be a greater risk in making slightest mistake in buying. The RBI is most likely to cut the prime interest rate by 25 basis points which has already been discounted in the markets when they rose in the last couple of weeks, especially after the inflation was reported to have been tamed down and the international markets for crude oil and gold eased making the rupee a tad stronger and cut in the current account deficit (CAD). However, the RBI governor D Subbarao known for being a tough guy so far as the interest rate cuts and inflation rates are concerned, many market operators don't expect a higher cut than 25 basis points, and in case he does not oblige the markets with 50 basis point cut, then the markets are most likely to give up further ground that they have gained in the last couple of weeks. In view of uncertainty pertaining to unknown fate of the interest rates and also the reported intrusion by the Chinese troops in the Indian territory which can escalate into a minor battle with the Chinese being adamant in denying the act, the markets may go further down than go up in the new week. It would therefore, advisable for the investors to tread very cautiously while making fresh investment decisions.
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