Market may remain volatile ahead of F&O expiry; RBI's policy review eyed

Equities may remain volatile in a truncated week as traders roll positions in the derivative segment from January 2010 series to February 2010 series ahead of the expiry of the near-month January 2010 contracts on Thursday, 28 January 2010. The market remains closed on Tuesday, 26 January 2010, on account of Republic Day.

The Reserve Bank of India will hold its quarterly monetary policy review on 29 January 2010 and is widely expected to increase the cash reserve ratio (CRR) requirements for banks, but economists are divided on when it will raise interest rates. CRR is the level of cash that banks must keep in deposit with the central bank.

A CRR increase would have little impact on market, as investors have mostly factored in at least a 25 basis points increase in banks' reserve requirement and steady interest rates. Increases in both the CRR and interest rates could however weigh on shares of banks as well as sectors such as auto and property on concerns loan demand may slow.

Industrial output grew 11.7 % in November 2009 from a year earlier, as stimulus measures since October 2008 to overcome the global credit crunch supported domestic demand.

The widely watched wholesale price index rose an annual 7.3% in December 2009, its highest since November 2008 and accelerating from a 4.8 % rise in November 2009. Food prices rose 16.81 % in the 12 months to 9 January 2010, easing from nearly 20 % in early December.

A host of key results will be announced. Prominent amongst them are Maruti Suzuki India (on Saturday, 23 January 2010); Mahindra & Mahindra, Hero Honda Motors, Hindalco Industries, Sterlite Industries, State Bank of India (on Monday, 25 January 2010); Hindustan Unilever (on Tuesday, 26 January 2010); Steel Authority of India, DLF (on Wednesday, 27 January 2010); Tata Steel (on Thursday, 28 January 2010); Tata Motors, and Sun Pharmaceutical Industries (on Friday, 29 January 2010).

The aggregate results for 439 companies announced so far showed that net profit rose 41.4% to Rs 31011 crore on 20.2% rise in sales to Rs 249678 crore in Q3 December 2009 over Q3 December 2008.

Global developments will be closely watched by investors. US Barack Obama's proposed new restrictions on banks, which would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund weighed heavily on global stocks on Friday 22 January 2010. The restrictions could limit leverage in the financial system and the role of risk-taking by hedge funds. The rules would also bar institutions from proprietary trading operations, unrelated to serving customers, for their own profit. These bets have been enormously profitable for the banks but can hold huge risks for the financial system if they go wrong.

Global markets had already recoiled in recent weeks on fears that Chinese demand would slow as Beijing taps the brakes on its roaring growth to stave off inflation and keep the economy from overheating. China had curbed lending by banks after raising banks' reserve requirement ratios (RRR) by 50 basis points earlier.