The coming week is also expected to be volatile as the market on Monday will first react to the outcome of Italy's referendum, solid US non-farm payroll and fall in unemployment rate to a 9-year low.
Indian indices failed to add gains in the week gone by. A sell-off on Friday wiped out almost all gains seen in the initial part of the week despite demonetisation. Caution ahead of Sunday's Italian referendum and after OPEC's oil production cut were key reasons for the sell-off. Overall, it was a consolidation week for the market with the Sensex and Nifty losing 0.3 percent each.
The coming week is also expected to be volatile as the market will likely react to the outcome of Italy's referendum, solid US non-farm payroll data and fall in US unemployment rate to a 9-year low raising chances of the US Fed raising interest rates at its policy meeting scheduled on December 13-14. RBI's monetary policy scheduled on December 7 will also be closely watched.
Analysts expect the Nifty to remain in a range of 7950-8300 in the short term, especially, till the Union Budget that will be announced on February 1.
Apart from rate decisions, markets could also be influenced by the RBI action on market stabilisation scheme (MSS), Dipen Shah of Kotak Securities said.
While a Fed rate increase is widely expected, markets will watch out for the comments accompanying the decision, he feels.
Globally, investors will closely watch Sunday's Italian referendum as it will decide whether Italy's citizens want to stay in the European Union or not. Britain was the first to exit European Union in June. Reserve Bank of Australia, Bank of Canada and European Central Bank policy meetings next week will also be important events to watch out for.
US dollar and bond yields have been rising on expectations of a Fed rate hike in December. With markets already pricing in a December rate hike, Janet Yellen's commentary on further trajectory of rates in 2017 will be closely watched. Any hints from Yellen on more hikes next year, will lead the US dollar to rally further.
Back home, after demonetisation, there has been sharp increase in banks' liquidity. Reports suggest that more than Rs 11 lakh crore has already been deposited in banks. To suck out some of it, the RBI temporarily increased the mandatory cash reserve ratio and the limit for MSS bonds to Rs 6 lakh crore from Rs 30,000 crore for FY17. This dragged the Bank Nifty 1.4 percent last week.
However, despite that economists still expect a repo rate cut of 25 basis points to 6 percent on December 7, which has already been priced in by the market. If RBI surprises with a 50 basis points cut then the market may see a relief rally. In October policy, RBI had reduced repo rate by 25 basis points to 6 percent.
"We lean towards a 50 bps cut for the simple reason that even before demonetisation we were seeing the rising possibility of 50 bps cut spread over the next 2-3 policy reviews, given that the RBI had lowered its assessment of neutral real rate and inflation was expected to be lower than RBI's indicative trajectory," Edelweiss said.
However, post demonetisation, near-term risks to both inflation and growth are tilted towards the downside. Edelweiss thinks it makes sense to front-load the monetary easing to limit the downside from demonetisation.
Apart from RBI policy, winter session of the Parliament, which will continue till December 16, is also important to watch out for. Oppositions so far disrupted proceedings due to demonetisation. However, the government has managed to pass the Amendments to Finance Act 2016 in Lok Sabha.
The market is not worried too much due to foreign institutional investors (FIIs) outflow as domestic institutional investors (DIIs) have been supportive. FIIs net sold more than Rs 23,000 crore worth of shares since October while DIIs net bought more than Rs 26,000 crore.
In corporate action, Satkar Finlease will split its face value of shares from Rs 10 to Re 1 and Chandni Textiles will consolidate face value of shares from Re 1 to Rs 10 with effect from December 8 while Indian Hume will start trading ex-bonus (one share for every one share held) from December 9.
Quarterly earnings are not yet over as Crompton Greaves, Ballarpur Industries, Future Retail, SAIL, Prestige Estates, GMR Infrastructure, PNC Infratech, SAIL, Finolex Industries, MMTC, SJVN, Jaiprakash Power, Jaypee Infratech, Jindal Steel, J Kumar Infra etc will announce Q2 numbers next week.The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .