New Delhi: Indian stock markets are likely to remain volatile this week as investors come to terms with an unexpected hike in interest rate by the Reserve Bank of India (RBI) and portfolio churning ahead of the September derivatives contract expiry, according to experts.
The surprise move from the apex bank has reversed the bullish tone of the markets as the 0.25 per cent hike in repo rate caught market participants completely off-guard, brokers said.
The RBI raised the short-term policy repo rate to 7.5 per cent from 7.25 per cent, saying inflation had to be lowered to more tolerable levels. The apex bank also partially eased its liquidity-tightening steps that were unveiled to defend a weakening rupee.
“This week will see expiry of September month's F&O contracts (on Thursday) so volatility will tend to remain high. Meanwhile, the markets are likely to consolidate in the broad range of 5,800-6,150 and form a base for next directional move,” said Jayant Manglik, president of retail distribution at Religare Securities.
The markets would also monitor the trend in foreign fund investment and global cues for further direction. Overseas investors have pumped in over Rs. 11,000 crore ($1.7 billion) in the Indian stock market so far this month.
The BSE benchmark lost 383 points on Friday - most in three weeks - after the RBI's monetary policy review. The Sensex had surged 684.48 points to an almost 3-year high the previous day after the US Federal Reserve refrained from easing its stimulus programme.
For the entire week, the index gained 2.69 per cent to close at 20,263.71.
“The deferment in withdrawal of quantitative easing by the US has given Indian policy makers a breathing space of three months at the least and six months at the best,” said P H Ravikumar, managing director of Capri Global Capital.