Expert Zone

(The views expressed in this column are the author’s own and do not represent those of Reuters)

The Nifty largely remained in a narrow band of 5520-5580 and corrected by 0.7 pct for the week in total with the all important 5500-mark breaking on Friday. The tone largely remained bearish with cues from world markets not supporting enough.

The latest IIP data showed a slowdown in industrial production growth for April 2011. It grew by 6.3 pct in April from a year earlier, according to a new index. On the political front, reports that the DMK may opt to withdraw ministers from the Cabinet after a high-level party meeting in Chennai on June 10 also spooked the markets during the close of the week. The latest is that they seem to be continuing in the alliance. Frankly, they don’t have a choice.

In stock specific developments, the ongoing strike at Maruti’s Manesar factory continued which led to uneasiness in some of the auto and auto-ancillary counters. In the present situation, it would be prudent to avoid this sector till the picture is clear.

Meanwhile, the government has once again deferred a decision on raising prices of diesel, kerosene and cooking gas. This is the third time in two months that the government has circumvented this decision on fears that it may further stir up inflation and a political backlash.

Talks of FDI into retail, with some riders to the extent of 51 percent, surfaced again providing impetus to organised retail companies such as Pantaloon, Shoppers Stop and Trent. This politically sensitive reform initiative has been in discussion for a long time in India and its implementation is expected to be a game changer for the retail industry.

The government has increased the minimum support price (MSP) for kharif crops by 8 to 19 percent. Thus the MSP of paddy is increased by 80 rupees per quintal and those of pulses by 200-400 rupees per quintal. The higher MSP is expected to increase the acreage under paddy and oilseeds at a time when global food prices are ruling at higher levels with no signs of moderation. This may also help restrain inflation in India.

For the coming week, all eyes will be on the mid-quarter monetary policy review on June 16, which will decide the short-term movement for the market. The RBI is seen raising its key lending rate by a maximum of 25 basis points. There is a possibility of maintaining status quo due to the continued slowdown in industrial activity.

Inflation figures for the month of May will also be available on June 14. The market expectation is 8.7 pct, much above the RBI’s perceived comfort level of about 7 pct.

Also on the radar is the first instalment of advance tax from India Inc which is due on June 15. This is expected to provide a signal for the June-quarter corporate earnings. All eyes would also be on the post-QE2 scenario which is still not clear as of now. The cues from the derivatives side suggest that cautiousness is expected to continue with downward bias as can be seen from fresh call writing in 5500 and 5600 option which will act as stiff resistance.