Market course hinges on RBI move

Buy promising scrips in small quantities at current levels On its way down, the 30-scrip Sensex plunged below 19K mark for a while. The fall in factory output growth during April, decrease in car sales for the seventh consecutive month in May and negative news from overseas were the main factors that led to selling spree in stock markets. Even the foreign institutional investors (FIIs), known for their zeal in mopping up the Indian stocks come what may, turned into net sellers last week. However, it was the last day's bounce back of over 350 points that lifted it back above this psychological level mainly on the revived hopes of a rate cut in the RBI's ensuing monetary policy scheduled for Monday, the June 17. However, even after rallying by a massive 350 points, the market barometer was still short of 251 points from the previous week's closing, indicating bearish trend. Markets began on positive note last Monday in the wake of the news that monsoon was progressing well across the country. Consequently, the BSE Sensex, which ended the previous week at 19429 points, opened up by a hundred points at 19530 and scaled to a high of 19586 in the initial trades. But before it could go further up, the news from the currency market turned out to be worrying as the slide in the rupee continued, which ultimately breached the previous bottom to set a new record on the wrong side. The fear is that the rupee value will touch the age of senior citizen milestone i.e. exchange rate of Rs 60 versus the US dollar. However, it was not only the rupee that turned laggard against the greenback this week. Nearly all the leading world currencies including those prevalent in the Eurozone and the Asian nations kneeled down before the strengthening dollar and their stock markets too lost modestly to heavily. The losses suffered by the Indian stock markets were more in comparison with those in the other nations mainly because the Indian markets have to factor in political uncertainties such as ensuing assembly elections in nearly a dozen states and Lok Sabha polls thereafter. The lack of policy measures is yet another factor that has kept the investors away from venturing into buying even at low prices. By Thursday, the Sensex plunged below 19k, hitting a low of 18766 before closing at 18827 with a net loss of 602 points. However, the mood of the markets completely changed on Friday with prevalence of buying enthusiasm as many positive indicators filtered into. The rupee bounced back from the historical low and the inflation was tamed further down to a 43-month low of 4.70 per cent. Besides, Fitch, a leading rating agency, upgraded India's outlook to stable from the negative mainly on the basis of the government's efforts towards economic reforms. Finance Minister P Chidambaram also played his part by making a fervent appeal to the nation to stop buying gold at least for a year in the view of ballooning CAD. He also brushed aside negative trend in stock markets as a temporary phenomenon. Low inflation and sustained fall in the IPP numbers make a perfect case for the Reserve Bank to consider a further rate cut and reduction in CRR when it meets today. In case such rate cut happens then the markets will go up with roaring speed towards crossing 20K mark once again and with the reports of the good monsoon spreading all over the country by mid-July, this positive sentiment will pave a way for a seasonal buoyancy that could be expected to prolong at least for three months and may take the Sensex higher than the previous all time high of 21207, provided no fresh negative incidents intervene The long term investors are therefore suggested to buy promising scrips at current market rates with a provision of infusing more funds if the stock prices fall down after their initial buys. To be able to implement this theory, initial buying must be in small quantities only as otherwise no funds would be available when the markets will offer really good and profitable bargains.