Quarterly earnings from companies and the central bank's policy meeting on Tuesday will underpin Indian shares that have been trying to pull out from a slide on expectation the worst was behind them.
The Reserve Bank of India (RBI) has had a tough job on its hands, wielding monetary tools to slam down on inflation that was largely caused by supply bottlenecks. It is widely tipped to raise rates by a quarter of a percentage point this week, which would be its eleventh increase — the most by any central bank in 16 months.
"A couple more increases is already in the prices," said equity salesman Mukesh Dalal. "The focus will be on the subtle signals, the language the RBI uses to outline the outlook."
There is optimism the RBI will pause after Tuesday's move and if economists interpret the central bank's typically bureaucratic statement and comments indicate as much, the stock market would get a shot in the arm.
The top-30 Sensex climbed 0.9 per cent last week, the fourth gain in five weeks, in anticipation the central bank would take note of slowing economic growth caused by the relentless rise in borrowing costs.
The government last week lowered India's growth forecast to 8.6 per cent for the financial year ending next March from 9 per cent projected earlier, while most private-sector economists say achieving 8 per cent would be difficult and the Sensex is down 8.5 per cent since the end of 2010.
The $1.3 trillion (Dh4.77 trillion) economy had expanded 7.8 per cent in the March quarter, according to the latest data, and the growth is likely to have slowed further in April-June with factory output already showing a sharp decline.
Finance Minister Pranab Mukherjee acknowledged that private-sector investment, which contributes the most to the economy, had dropped due to price pressures and greater costs.
"Capital expenditure is led by the profit cycle, which was affected somewhat by cost escalation of inputs," he said.
Analysts are betting a slowdown in growth in China and India, the world's fastest expanding economies, will help ease the voracious demand for crucial commodities such as oil, resources and metals and cool inflation pressures.
Reliance Industries, the energy giant which has the heaviest weight of just over 10 per cent on the Sensex, will be on the radar this week after the government approved the company's $7.2-billion deal to sell 30 per cent stake in some oil and gas blocks to British Petroleum.
The company, controlled by billionaire Mukesh Ambani, also reports June quarter results tomorrow and traders are estimating profits to have risen about 17 per cent to a record Rs57 billion (Dh4.72 billion).
A draft plan by Eurozone leaders to provide succour to debt-stricken Greece and hopes the crisis would not spread to other countries in the region have revived global investor confidence and triggered hopes for inflows
"External factors have bolstered comfort levels," Dalal said. "After Europe, there is greater hope the US would also reach a deal to tackle its huge debt."
From / Gulf News