Index Outlook: Central banks to the rescue

Beijing-China (Oct 25)  Investors straggling in to trade after a long weekend will have to shake off the holiday stupor and get bright and alert early. For we have an action-packed week ahead of us.

People’s Bank of China cut its benchmark interest rate by quarter points and lowered banks’ reserve requirement by half percentage points late on Friday.

The move follows a very low 6.9 per cent in the third quarter GDP growth; the lowest since 2009. This move will affect the opening prices on Monday morning.

China’s move follows indications by the European Central Bank, earlier last week that it will do all it can to give a leg-up to growth and inflation.

These moves will weigh heavily on the Federal Reserve and Bank of Japan that are scheduled to hold their monetary policy meetings this week. Clues emanating from these meetings will determine the short-term trajectory of equity markets.

If the Fed continues to adopt the line that ‘uncertain external environment’ stands in the way of monetary policy normalisation, equity markets are likely to move further up next week. The charts of major benchmark indices, including the Dow Jones Industrial Average, CAC and DAX, recorded strong gains last week. These gains have made the near-term view positive for equities.

Indian indices also edged higher last week. But they are yet to clear important medium-term hurdles. It would be best to stay cautious until they do so.

Derivative expiry scheduled for Thursday will influence trade this week. With the ongoing rally having lasted since the beginning of this month, those holding long positions will now have to decide how much steam is left in the rally.

Quarterly earnings of companies will continue to cause stock specific movement. Foreign portfolio investors have turned net buyers in Indian markets.

They have net purchased $850 million of stocks so far this month and $2.1 billion on debt instruments.

Source: TheHinduBusinessLine