Stock market outlook: 'RBI, US Fed policy moves key for stock markets this week'

Stock MarketData for inflation based on WPI is expected to have a major bearing on RBI policy meet on Dec 18.

The RBI's mid quarter review of monetary policy and the US Federal Reserve's meeting that could decide on tapering its economic stimulus would be the key driving factors for stock markets this week, experts said.

Data for inflation based on wholesale price index, scheduled for release on Monday, is expected to have a major bearing on RBI policy meet on December 18. Price rise measured by the consumer price index rose to a nine-month high of 11.24 per cent in November, raising fears of an imminent rate hike.

According to ICICI Bank Treasury Research Group, November WPI print is expected at close to 7 per cent. In September, it stood at 6.46 per cent, rising for the fourth straight month.

"The odds of a rate hike by the RBI have increased substantially post the sharp uptick in the November retail inflation...if WPI inflation data also shows a material uptick then it would create an outside chance of 50 bps repo hike," said brokerage India Infoline.1 bps is equal to 0.01 per cent.

The Sensex, led by rate-sensitive sectors, slid over 600 points since hitting its all-time high on December 9 on profit-booking and fears that inflation would compel RBI to hike lending rates. It ended at 20,715.58 on last Friday.

However, some analysts feel stocks may rebound on Monday.

"Due to successive decline in the last four sessions, we may see some technical rebound on Monday especially in oversold positions," said Jayant Manglik, President-Retail Distribution, Religare Securities Limited.

Jignesh Chaudhary, Head of Research at Veracity Broking Services said that markets anticipate some hawkish stance from RBI in the form of increase in lending rates this week.

On the global front, the Federal Open Market Committee (FOMC) will hold a 2-day policy meeting on interest rates on December 17-18.

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