7500 or 8500? 5 things that may keep market jittery in Sept

Moneycontrol Bureau

After being beaten black and blue by the Chinese dragons, Indian market stares at 8500 with bated breath. Action packed September may boost the bulls but journey upwards will need patience and strength. August Future & Options (F&O) series has been worst in last two years. The market recorded biggest fall in absolute terms in this series since August 2013. The Nifty fell 473 points in August series, Sensex loses 1,478 points.

Sanjay Dutt of Quantum Securities says it is a structural bull market and what we have seen is an extremely aggressive correction in that structural bull market. He adds that whenever such deep aggressive corrections occur, the bottoming out is basically a process, it is very rarely a sharp V-shaped recovery. He believes 7,590 on the Nifty is a very important level and adds that this is a good time to buy into select stocks.  So, the rollercoaster may continue and these are five factors that Nifty may ride on to touch 8500.  Federal Reserve rate hikeMillion dollar question is will Federal Reserve hike interest rates on September 17. Analysts believe Federal Reserve Chairman Janet Yellen may raise short-term interest rates now. The central bank has held its benchmark short-term interest rate near zero since December 2008 supporting world economy. Policy makers are also waiting for August jobs due on Friday. Earlier in a CNBC interview, Federal Reserve Vice Chairman Stanley Fischer said it was too early to tell whether volatility in the market made it more or less compelling to raise rates in September.Bank of America Merrill Lynch thinks Fed may finally hike rates this time. It feels Fed hikes that signal US recovery is positive for India. "First, US growth stimulates export demand. Second, it will rein in global commodity prices and thus, imported inflation. Finally, it supports the rupee by rekindling risk appetite for high growth emrging markets," it says in a note. RBI monetary policy review So, will RBI Governor Raghuram Rajan follow  Yellen on September 29? BoAML says if markets price in a Fed hike, it will get easier for RBI Governor Rajan to cut rates by 25 basis points this time and the central bank RBI should also be able to hike the FPI G-sec limit by USD 5-6 billion to attract capital inflows.

"Even if the Fed delays, the RBI is unlikely to wait until December as deflationary pressures are picking pace at home with July CPI inflation – at 3.8 percent – undershooting the RBI’s inflation trajectory,” it says. The RBI kept interest rates unchanged at its last policy review on August 4. Economic growth data for the April-June quarter will be released on August 31.

Deutsche Bank expects RBI to slash key rates by 0.25 percent in the upcoming review. However, it adds "spillover risks from continued volatility in global financial markets or potential disorderly exchange rate movement may delay the RBI's rate cut."Bihar Assembly ElectionThe upcoming Bihar election will be important for the market as stalwarts will battle it out in the Hindi heartland. BoAML says elections in the eastern state will likely influence reforms. While the Bihar polls will not affect the political stability at the center, as Prime Minister Modi's BJP enjoys a majority in the Lok Sabha, it says poll results will have a bearing on the course of reforms. 

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Nasrin Sultana

Special Correspondent|Moneycontrol.com

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“Bihar Chief Minister Nitish Kumar (of JDU), an estranged BJP ally, and his current ally, Laloo Prasad Yadav (of RJD), are leaders of the left-of center opposition. So, a BJP victory would strengthen the stance of the central government in pursuing reforms. At the same time, a defeat to the left-leaning Nitish -Lalu alliance would further diminish chances of amending the Land Acquisition Act,” BoAML adds. Dutta also feels that Bihar elections are temporary setbacks for the government, but they are not going to really move our Prime Minister from the resolve and the team they have resolved to sort out things.

Sliding Rupee In tandem with the global markets, the Indian currency has also been losing value. It will be crucial to see if it touches 67 per dollar this month. Divya Devesh, ASIA FX strategist at Standard Chartered Bank says fundamental problems have not been still solved, which means that the INR could still remain under pressure in the near-term at least till the time that we get some sort of fiscal or even monetary measures being announced from China and elsewhere.

Jai Bala of 1857 Advisors feels there is a strengthening process due for the rupee from a short term perspective. "Once that correction is done, we are looking at record lows closer to 74-76 for the Indian rupee but that is going to be in the medium term timeframe," he says in an interview to CNBC-TV18.Brent Crude price

After hitting a 6.5 year low, crude price has started to climb. Miswin Mahesh, Barclays sees crude price drifting back around between USD 50 and USD 60 per barrel again. He says if crude was trading at USD 60 per barrel like it was before the second dip we would have had a much difficult time in balancing the market. "This damage that the price does over the third quarter of this year and possibly through the fourth quarter does helps raise prices this 60 per barrel next year and that is the level which we kind of require for crude oil production from the shale basin and some of them to get sustain for next year to meet the incremental call," he adds.Follow my stories hereTwitter @NasrinzStory