Weekly Stock Market Forecast - 27th July - 1st Aug.

>> Sunday, July 27, 2008

As the government has now won the confidence vote and the Left parties are out of the way, there is now a growing optimism amongst market participants that the new coalition government could speed up the reform agenda. This feeling has been buttressed by the statements of the Finance Minister in the aftermath of winning the confidence vote in Parliament . However, with Indian inflation at close to 12%, its highest in the past 13 years, the top-most priority of the government now would be to try and contain inflation.

With the quarterly monetary policy review of the Reserve Bank of India scheduled for early next week (Tuesday, 29 July 2008), the markets are likely to witness higher volatility in the week ahead, supplemented by the derivatives settlement during the week ahead. Another factor that could influence the direction of the markets would be the revival of monsoons, particularly in the western and southern states which have hitherto received deficit rainfall.

With expectations running high and oil seeming to cool off, the downside could get capped. But for now, investors would do well to keep booking partial profits in the event of sharp rallies and await entry opportunities at lower levels.

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