Top three event risks that Dalal Street will have to deal with in March

NEW DELHI: The S&P BSE Sensex breached all resistance levels last week and is now trading comfortably above the psychological support level at 24,000, supported by positive global cues and consistent buying by foreign institutional investors (FIIs).

The S&P BSE Sensex rallied over 1,600 points as overseas investors pumped in a staggering Rs 4,100 crore into the Indian equity market ^[2] in the last four sessions on hope of a rate cut by the Reserve Bank of India (RBI).

FIIs have been net buyers of equities so far in March after pulling out a massive Rs 16,648 crore from the market in the previous two months.

Experts said investors should not expect a breakaway rally like the one witnessed last week, which was a combination of both short covering and formation of long positions. Going forward, global cues along with the outcome of RBI's monetary policy meeting ^[3] in April will dictate market trend.

"Apart from a possible rate cut, global clues and a few macro-economic data will dominate market sentiments in the coming week," said Vijay Singhania, Founder-Director, Trade Smart Online.

On the global front, Chinese Premier Li Keqiang will outline the government's budget and official gross domestic product (GDP) target for 201 6 at the opening of the National People's Congress (NPC) this coming week.

"The annual plenary session begins in Beijing on March 5 and runs through March 16. The annual meeting is China's biggest political event and primarily serves as a rubber stamp to the annual budget and various government reports," Singhania said.

He said Japan will declare revised Q4 gross domestic product figures this coming week and the European Central Bank (ECB) governing council will meet to review interest rates ^[4] and stimulus programme, which will provide key triggers for the market.

The rally could falter across the globe if central bankers do not give any clear signals on further easing. If that does no t happen, the domestic market which rose with the tide in other global markets could find itself languishing at key support levels.

"What fuelled the rally in the last few weeks globally was expectation that central banks globally will act in coordination," said Hemant Kanawala, Kotak Life Insurance.

Kanawala, though, warns that the current rally can falter if the market's expectation of monetary easing is not reciprocated by the central banks.

Here are the key event risks the domestic markets is going to face in the coming week:

USD may continue to strengthen even if Fed does not hike rates in March: Market participants across the globe said the US Fed might refrain from raising rates for the rest of the year amid a slowdown in global economy. They even expect the central bank to reverse the direction of rates and go for negative interest rate regime.

Even if US Fed does not raise rates in March actions from other central bankers will make dollar strong. A strong dollar is never a good news for India economy ^[5] or markets.

"US Fed is data dependent. I would say that we still have scope for one to two rate hikes for the year and, of course, with that comes to a strength in the US dollar ^[6] particularly because of other central bank actions," said Nandini Ramakrishnan, JPMorgan Asset Management in an interview with ET Now.

"Bank of Japan have started easing rates aggressively. They have negative rates. Up next, you have the ECB where Mario Draghi ^[7] next week might add more to its monthly purchase amount or extending the programme which is going to drive the euro down and Dollar up," added Ramakrishnan.

Data coming out of US suggests that US economy is recovering which gives Federal Reserve to raise rates. Does that mean that US Fed would raise rates in March? Well, data suggests that US economy is strong and most estimates from analysts are for the year. Hence, if not in march, US Federal Reserve could raise it to near 100 bps in 2016 which is enough to unsettle the world.

A majority of Wall Street's top banks now expect the Federal Reserve to ra ise interest rates only two more times by the end of the year, a downgrade of earlier expectations that may presage the Fed's own revised view of its path when it meets in less than two weeks, said a Reuters report.

A Reuters poll shows the median forecast of 17 primary dealers that deal directly with the Fed is for a federal funds rate of 0.875 percent by the end of the year, reflecting the mid-point of the range for two key rates used by the Fed to adjust monetary policy.

Will Rajan go for out-of-cycle rate cut? Chances of that happening look grim. The market rallied partly on hopes of an out of policy rate cut in the month of March itself, as the Finance Minister ^[8] Arun Jaitley ^[9] retained FY17 fiscal deficit target at 3.5 per cent of GDP ^[10].

RBI is scheduled to meet on April 5 to decide on a rate cut, but experts think that the Indian central bank will wait and watch what US Fed will do in its upcoming policy meet. A small correction could well happen if RBI does not reduce rates in the month of March which most market participants are expecting.

RBI will wait a month to cut interest rat es again, according to economists in a Reuters poll who mostly said the latest fiscal deficit target looked optimistic.

The majority of economists polled said he would not repeat the surprise cut of 25 basis points he delivered just a few days after last year's budget, with 20 of 28 saying a cut was unlikely before next month's policy review on April 5.

Redemption pressure to continue: Moody's Investors Service slashed its outlook for the debt ratings of Saudi Arabia and three other Gulf states while lowering Bahrain's rating to junk, citing concern over the impact of low oil prices on their finances.

Saudi Arabia's Aa3 rating was placed on review for a possible downgrade, Moody's said late on Friday. Moody's also put the United Arab Emirates, Kuwait and Qatar on review for downgrades.

The Indian market ^[11] is already feeling the pinch of redemption pressure from global emerging market funds, and redemptions are likely to continue especially from the sovereign wealth funds of the West Asia, experts said.

"The whole of West Asia is in kind of depreciation and the whole resource sector is badly affected because of that. The resource producing countries whether it is Brazil or South Africa or Russia and suppose they all are suffering," said Marc Faber, The Gloom, Boom & Doom Report.
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