Markets Next Week: All Eyes On RBI Policy, Geo Political Tensions

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The Sensex shed 2.5 per cent this week, as geo political tensions came to the fore, after India conducted surgical strikes near the border. This led to a sharp sell-off in the Indian markets on Thursday, though we saw some recovery in the markets on Friday.

Deutsche Bank

Global markets were rattled after worries over the fundamentals of Deutsche Bank. There were also worries that this time, the German government would not come to the aid of the bank.

However, Deutsche Bank shares recovered after CEO John Cryan tells staff that the bank has ‘strong fundamentals' and reports suggest US deal is close.

Good support from FPIs and domestic institutions

Despite the sharp sell-off in the markets on Thursday, both domestic and foreign institutional investors were net buyers in the cash market. Interestingly, on Friday, FIIs were net sellers in the markets to the tune of more than Rs 1,000 crores.

Thursday was also expiry day, which added to the volatility in the markets. The September series ended on a very poor note, with the markets as a whole very tentative.

What happens across the border?

Next week is likely to be volatile, even as geo-political tensions come to the fore. Anybody trying to predict what could happen ahead, is trying to be clever, as political and military outcomes are never known.

Further aggressive behaviour from Pakistan near the border may lead to a fresh sell-off in the markets.

All eyes on the Reserve Bank of India

The Reserve Bank of India officials will meet on Oct 4, to decide on rate cuts. Most analysts are predicting a rate cut of 25 basis points in the repo rate. However, one cannot be sure, which way interest rates would move and if at all the RBI cuts rates

Inflation has not really been low. Since Raghuram Rajan delivered his last policy in August, in which he kept interest rates low, the consumer inflation has fallen to 5.05 per cent in August. However, this was still above the RBI's comfort zone.

All in all, there might by a cut in interest rate of 0.25 per cent, which should not surprise the markets. However, that is no certain and we are betting on the RBI holding interest rates.

Read more about: sensex, nifty
Story first published: Saturday, October 1, 2016, 7:18 [IST]
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