The central bank’s eagerly awaited policy review scheduled for tomorrow has managed to pull the markets down for the sixth session in a row. The steady slide was broken today with a commendable jump amidst optimism.
The market remained volatile from the fag end of last week due to a combination of bad news. Below-par quarterly results of corporates influenced the market in a big way. The colossus of the construction industry, Larson & Toubro had earlier declared a drop in revenue.
These just point to the delicate constitution of the Indian stock market, which can crumble like cookies even with mild pressure. It has to be remembered that it is this same market that rallied consistently last year to recoup the ground it lost to global recession.
The stock market displayed the same fickleness when it rose today based on the landslide-profit report of DLF Ltd., the country’s largest developer. Software exporting companies like Wipro Ltd also posted gains, as dollar strengthened.
The Reserve Bank of India is expected to initiate strong measures to contain inflation, which is threatening to get out of control. It is expected that the RBI would tighten the monetary policy, which includes hiking bank cash reserve ratio, repo rate and reverse-repo rate. Among these, the central bank may raise one or two and leave the rest untouched. We have to wait and see which ones are being picked up.
Whatever RBI’s moves are, it would be aimed at curtailing inflation and overheating of economy. The direction the Indian economy takes will depend on the rates chosen for the hike.
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