Mkt course hinges on monsoon, RBI

Technical correction likely on account of rating agency S&P's warning last weekA After a horrifying start to the new week on Monday, the Indian stock markets not only regained the early losses but gained fresh ground in the immediate recovery process which not only helped the BSE Sensex to end in the plus territory for the fifth week in a row, but also scale to a 30 months' high. The BSE Sensex which got a severe knock of 431 points on Monday after the release of adverse statistics pertaining to import of gold and the resultant huge jump in the current account deficit (CAD) jumped up by 491 points on Wednesday and thereby wiped out the negative impact of Monday's huge fall.

The small gains recorded on the rest of the days were added to the balance in the end. The Wednesday's grand recovery was the result of the fall in the inflation rate for the month of April that revived the hopes of a further interest rate cut by the Reserve Bank of India in its review meet in June. Most of the other things that could impact the market sentiments remained the same during the course of trading on all the five working days but for the warning issued by rating agency Standard & Poor's that it would downgrade India's sovereign rating unless reforms were speeded up. This warning may cause a technical correction that has now become due after a five week long winning streak by the Sensex. Prior to the agency's warning that came after the markets closed for the week on Friday, the BSE Sensex did a merry-go-round and experienced huge and wild moves on both the sides. The main market barometer was down 431 points on the very first day on increased selling by bull operators who felt that a wide gap between the imports and exports would take its toll on the rupee value. Their fears proved to be wrong as the markets on the very next day received a positive news in the nature of a fall in the inflation rate that went down to a three years' low. However, the impact of this news was felt only on Wednesday when the FIIs jumped in for buying on a big scale. The FIIs' this time bought more of mid-cap stocks and made individual small investors bear smiles on their faces who in turn were tempted to increase their stakes in the already owned stocks. The BSE Sensex during the course of pendulum movements fell to a low of 19653 on Tuesday and reached a 30 months' high of 20328 before closing the week at 20286 with a marginal gain. Since the major index has crossed the previous peak of 20204 established on January 29, 2013, a likely fall on S & P's downgrade warning may not do much harm to the markets because some good news is that the first rains of the monsoon have already arrived on time in Andaman and Nicobar. The MET has also predicted that the monsoon this year would be satisfactory and spread all-over the country by July 15 or so. If there is a good start to the seasonal rains, RBI reduces interest rate and cuts CRR, then the markets will go up and may even cross the historical peaks established during the unprecedented boom of the year 2007-08. However, one has to watch this happen and then only buy stocks or else be trapped for yet another dull season which may prolong for more than a year or so.