RBI's monetary policy, corporate results to set the tone

The Reserve Bank of India's (RBI) quarterly review of the monetary policy on 27 January 2009 and results from index pivotals will be dictate trend. Global cues will also be closely watched. Volatility may rise, in truncated week, as futures & options contracts for January 2009 series expire on Thursday, 29 January 2009. Market will remain shut on Monday, 26 January 2009 on account of Republic Day.

The street expects the RBI to signal a softer interest rate stance in its meet on 27 January 2009, although the key rates are expected to stay on hold. Economic research firm Moody's Economy.com predicts the central bank may take a relatively smaller step, following a series of aggressive interest rate cuts from October 2008. It forecasts a 50-basis point reduction in the repo rate, to 5%. Meanwhile, the cash reserve ratio and the reverse repo rate are likely to be kept unchanged, as their current settings leave little room for further cuts.

Since October 2008, the RBI has released over Rs 3,20,000 crore into the banking system to usher in a low-interest regime in the economy, as prices of fuel, agricultural commodities and metals plunged, easing inflationary pressure.

The research firm added that in the present economic environment, the RBI is expected to focus on the growth rate and credit market stability when reviewing monetary policy and so the monetary easing cycle will continue through the first half of 2009.

After declining for 10 consecutive weeks, inflation, based on wholesale prices, rose by 0.36 percentage points to 5.6% for the week-ended 10 January 2009, from 5.24% for 3 January 2009. The PM's economic advisory panel member Mr Saumitra Chaudhuri expects inflation to come down to 3 to 4% by the end of this fiscal.

Earlier, inflation has more than halved from a 16-year high of 12.91% in August 2008 as a global economic slump drives down prices of oil and other commodities.

On the flip side, the Prime Minister's Economic Advisory Council on Friday, 22 January 2009 lowered India's growth forecast for the current fiscal to 7.1%, against its earlier prediction of 7.7%, on account of the impact of the global meltdown. The council, headed by economist Suresh Tendulkar, expects the country's gross domestic product (GDP) to expand by 7-7.5% during the next fiscal.

ONGC, Bhel, Maruti Suzuki India, Mahindra & Mahindra, Cairn India, BPCL, Titan, Mundra Port, Tata Power, HPCL, Gail India, Century Textiles, NMDC, Nalco, will declare their December 2008 quarterly results in the forthcoming week.

The street was anticipating poor Q3 December 2008 earnings from Indian Inc on high input costs, the credit crunch and high interest rates, coupled with the burden of piled-up inventories. Aggregate results of 486 companies showed 24.80% fall in net profit on a 19.40% increase in net sales in Q3 December 2008 over Q3 December 2007.

Foreign brokerage Morgan Stanley in its research report dated 5 January 2009 said earnings of 30 BSE Sensex firms are set for their first quarterly drop in Q3 December 2008, since the data was first made available in 1999. It estimates the BSE Sensex earnings to drop 0.2% year-on-year basis compared with a growth of 5.5% and 20% in the September 2008 and June 2008 quarters, respectively.