Indian Markets Outlook for the week - 27.01.2014 - 31.01.2014

Reserve Bank of India's third-quarter review of monetary policy and Oct-Dec earnings of companies will set the trend for equities next week. The RBI will detail its policy review as well as the macroeconomic and monetary developments report on Tuesday. Most market traders expect the central bank to leave policy rates unchanged even as core inflation remains high, given the continued deceleration in economic growth.

Although Consumer Price Index-based inflation eased to a three-month low of 9.87% in December from a lifetime high of 11.16% in November, it is still uncomfortably above 8%. Moreover, industrial output hit a seven-month low of (-)2.1% in November, contracting further from (-)1.6% in October. In its last monetary policy statement in December, RBI had said that it would take appropriate policy action if headline inflation did not decline significantly, or if core inflation did not fall.

The recent data does indicate there is limited room for a cut in interest rates, but experts remain divided over a hike in interest rates. If the RBI were to strictly adhere to its forward guidance it would, therefore, hike rates on January 28. However, we believe it will remain on hold, hanging its hat on the decline in headline inflation and the weakening growth momentum.

The S&P BSE 30-share Sensex ended at 21133.56, down 240.10 points or 1.1%. National Stock Exchange's 50-share Nifty fell 78.90 points or 1.2% to close at 6266.75. MCX Stock Exchange's SX40 ended at 12594.82, down 142.01 points or 1.1%. Considering Friday's (yesterday's) decline, we might not see any major directional move in index on Monday, but any bounce would further attract selling pressure. After the RBI's policy meet, focus will shift to US Federal Reserve Open Market Committee's two-day policy meet that will begin on Tuesday.

Bias for the market is cautious in light of the above-mentioned events, with participants expecting volatility to persist as the January derivatives contracts will expire next week. Crucial support for Nifty is seen at 6150-6180 points, while on the upside, resistance is pegged at 6350 points. Besides the monetary policies, the market will also see several companies releasing Oct-Dec earnings, which may further increase volatility.

The index majors reporting earnings next week are Hindustan Unilever, Jindal Steel & Power, Maruti Suzuki India, NTPC, Sesa Sterlite, Bharti Airtel, GAIL (India), ICICI Bank, Hero MotoCorp, Siemens, IDFC, and Punjab National Bank