Wednesday, January 19, 2011

Stocks, Bonds to Open Lower Before India Rate Meeting

India’s Sensex stock market is likely to open about 50 points lower, following on weak cues from other Asian markets as well as previewing the central bank’s monetary policy review later Tuesday, one local dealer says.

“Since it’s such an event-heavy week, with the central bank’s monetary policy meet today and the [U.S. Federal Reserve] meeting tomorrow, investors will stay light and take a call once these events are done with,” says one local dealer. He adds that the market’s opening should be tepid and predicts it will trade in the 20,200-20,500 band during the day. Thirteen out of 20 economists polled by Dow Jones expect the Reserve Bank of India to increase the repurchase rate by 0.25 percentage points to 6.25% and reverse repurchase rate by an equal amount to 5.25%.

The Sensex closed 1.6% higher at 20,355.63 on Monday.

Another dealer with a state-run bank predicts Indian government bonds are also likely to open lower.

He predicts the 8.13% 2022 bond is likely to trade in 8.05%-8.11% range vs. 8.07% on Monday.

“The hawkish statements on inflation in the central bank report last evening may weigh on sentiments. But markets will also look for a shift in central bank stance on the future of its rate tightening moves,” the dealer said. He adds that markets have factored in a 0.25 percentage point increase in rates, and anything more is likely to sour sentiment, while a decision to hold rates steady could spark a strong rally.

– John Kumar and Nupur Acharya

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