Markets set for action-packed December, all eyes on RBI policy this week

Indian markets are likely to see an action-packed December as the outcome of state elections in five states, the Reserve Bank of India’s monetary policy due next week and movement in oil prices test its ability to sustain gains made in November.

Following two months of decline, the Sensex and Nifty rose about 5 per cent in November — the steepest monthly gain since July — owing to a sharp fall in crude oil prices, appreciation in the rupee against the dollar, dovish commentary from the US Federal Reserve chief over rates and hopes of a US-China deal on tariffs. Foreign investors bought equities worth Rs 6,000 crore after pulling out Rs 39,000 crore since August as they returned to the market.

“The two main events to watch out will be the OPEC meeting and the state elections. Possible cut in production of crude oil is likely to be discussed at the OPEC meeting and state election results are due on December 11,” said Harsha Upadhyaya, CIO-equity at Kotak Mahindra Asset Management Co. “Both these events will decide the direction of the market.”

The OPEC countries and its allies will meet on December 6-7 to discuss a deal to cut output. RBI’s monetary policy meeting will conclude on Wednesday and market participants expect the central bank will keep the repo rate unchanged at 6.5 per cent.

At today’s market open, markets will react to the gross domestic product growth numbers released late on Friday, which showed that India’s economy expanded 7 .1 per cent in the September quarter, down from 8.2 per cent in the preceding one. However, money managers said they don’t see any significant distress in market sentiment because of the slower-than-expected GDP growth.

The meeting between the presidents of the US and China at the G20 summit in Argentina over the weekend ended with signals of progress in defusing the trade war, which is seen positive for markets.

However, all eyes are on the state poll results, seen as an indicator of public sentiment in the run-up to the general election. Chhattisgarh, Madhya Pradesh, Mizoram, Rajasthan and Telangana are holding polls.

“Any further upside will depend on the perceived and actual outcome of the state elections and its implications for the 2019 general election,” said Ravi Muthukrishnan, head of institutional research at Elara Securities.

An outcome in favour of the Bharatiya Janata Party will bolster its prospects in the general election. However, in the event of an unfavourable outcome, money managers and equity strategists don’t see a significant fall in the market.

“Even if state election verdict is unfavourable for the market, all things equal, it (Nifty) will not fall below 10,000,” said Rahul Arora, CEO, institutional equities, Nirmal Bang.

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