Reference Auto

After two weeks of losses, the country’s bourses turned bullish in the wake of a buying spree by domestic funds in some financial stocks but the Reserve Bank of India’s (RBI) rate hike next week could drag them down again.

Last week, the Sensex, the benchmark index of the Bombay Stock Exchange (BSE), ended at 19,007.53 points, up 147.09 points from the previous week’s close of 18,860.44 points.

On Friday, the last trading day of the week, the benchmark index closed 39.01 points or 0.2 per cent lower at 19,007.53 points in a somewhat dull trading. The 50-scrip Nifty of the National Stock Exchange ended 15.1 points or 0.26 per cent down at 5,696.5 points.

But next week, the stock markets are likely to remain subdued as the Reserve Bank is set to raise interest rates in an aggressive bid to tame inflation during its policy review on Tuesday. The apex bank’s move is likely to suck out a substantial amount of money from the country’s financial system.

With the inflation scaling 8.43 per cent in December 2010 (against 7.48 per cent in November 2010), the market hopes the RBI will hike key policy rates by 25 bps and the apex bank could end the year with a cumulative hike of 100 bps (for the entire 2011).

On Friday, the BSE mid-cap index ended 0.22 per cent higher while the BSE small-cap index saw a rise of 0.46 per cent. Large-cap stocks also saw a gain.

Stocks that helped the Sensex move up were Reliance Infrastructure, which saw a rise of 2.81 per cent to Rs.737.10. State Bank of India went up 2.49 per cent to Rs 2,597.95 while Reliance Communications was up 2.14 per cent at Rs 136.10 and BHEL shares rose 1.75 per cent to Rs 2,217.50.

Among the main losers in the Sensex pack were Wipro, which shed 4.59 per cent to Rs 456.05, ONGC scrip fell 2.57 per cent to Rs 1,105.05 even as ITC was down 1.63 per cent to Rs 168.95.

The scenario in the remaining parts of Asia was somewhat mixed on Friday with fears that China may put a noose on its monetary system in the next few weeks. But China’s bourses remained firm. The Chinese Shanghai Composite index went up 1.41 per cent to close at 2,715.29 points.

Among other Asian bourses, Hong Kong’s Hang Seng fell 0.53 per cent to end at 23,876.86 points and Japan’s Nikkei ended 1.56 per cent lower at 10,274.52 points.

On Friday, the US markets also saw mixed response. While the Dow Jones Industrial index ended 0.41 per cent higher at 11,871.80 points, the Nasdaq index tanked 0.55 per cent at 2,689.54 points.

So, where is India’s share market headed from here? Notwithstanding the ups and downs on the bourses, we have some robust data: The Centre for Monitoring Indian Economy (CMIE) recently revised (upwards) growth forecast to 9.2 per cent for the whole year.

CMIE added that performance of other segments of the services sector like finance, insurance and realty will also turn buoyant owing to strong credit off-take.

There is an impediment though. Burgeoning food inflation along with headline inflation, which has led to a surge in prices of vegetables like onions, could be of some concern.

If the government is able to tame inflation, then it could be possible for the Sensex to touch its projected figure of 25,000. But if inflation turns out to be a monster and the Centre throws up its hands in despair, then the markets could face a bumpy road ahead.