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RBI policy, quarterly earnings to steer markets this week

Monday, February 05, 2018

Post Budget rout, domestic equities this week will look up to Reserve Bank's monetary policy decision and quarterly earnings from bluechips such as Tata Motors, PNB and Cipla for direction, say experts.

The last week's budget proposals of 10% long-term capital gains (LTCG) tax on equities and overshooting of fiscal deficit target quashed investor optimism, leading to a massive rout on bourses.

"Higher than expected fiscal deficit target for FY19, rising inflation and yield may push the RBI to be more hawkish on interest rate in the upcoming monetary policy. Introduction of LTCG will have a short-term impact...But history points out that the budget-led volatility may not extend for long and focus will change to earnings and other macro developments," said Vinod Nair, Head of Research, Geojit Financial Services.

PMI data for the services sector is due on Monday would also influence trading sentiment. "Markets were trading at rich valuations for the last couple of months and thus have corrected post Budget. Market correction is likely to reduce the excesses that were happening where risk aversion was difficult to find," said Arun Thukral, MD & CEO, Axis Securities.

Among major earnings this week are from Tata Motors, Hero MotoCorp, Lupin, PNB, Cipla, Andhra Bank, BHEL and SAIL. "Investors were disappointed with LTCG coming in over and above STT. However, Budget is aimed at spurring demand from rural India and masses going forward to take care of India growth story. Execution and implementation will be the key ahead," said Anita Gandhi, Whole Time Director, Arihant Capital Markets.

"Uncertainties over the execution of spendthrift Budget without tampering fiscal deficit target have fuelled the current volatility and may compel the RBI to take a more hawkish stance in the upcoming monetary policy meeting," said Anand James, Chief Market Strategist, Geojit Financial Services.

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