RBI’s monetary policy review is likely to keep investors guarded

Global cues are likely to induce a flat opening for the domestic market. Wall Street posted its biggest gain in almost two months on Tuesday on positive economic news but markets in Asia were trading mixed despite gains in US stocks overnight. The SGX Nifty was eight points lower at 5,508 compared to its previous close of 5,516.

Yesterday the market closed with modest gains amid high volatility on the back of a sharp rise in headline inflation numbers for May and worries that the Reserve Bank of India (RBI) could toughen its stance at its monetary policy review on Thursday.

The market snapped its four-day losing streak, opening higher, tracking the gains in Asian markets on the back of Chinese inflation numbers that were in line with analysts' expectations. The Sensex opened 11 points higher at 18,277 and the Nifty added three points to its Monday's close to open at 5,846. Early gains were supported by buying in oil & gas, metals and banking stocks.

The market touched its intra-day high in the first half hour with the Sensex climbing to 18,380 and the Nifty to 5,520. However, some profit-taking resulted in the indices paring some of the gains. While the market maintained its positive momentum, a rise in the monthly inflation numbers for May pushed the benchmarks southwards. The choppiness continued on concerns of higher prices of food as well as non-food items.

The indices touched the day's low in noon trade with the Sensex and the Nifty paring all their gains, almost touching their previous closing figures. The positive opening in key European markets and higher US futures lifted the domestic market in late trade. The market closed in the positive, with the Sensex adding 43 points to 18,309 and the Nifty gaining 18 points to 5,501, above the psychological 5,500 level.

The market is expected to continue its range-bound movement over the next few days. The next support for the Nifty lies at 5,418 and resistance at 5,550.

Markets in the US ended with smart gains overnight on less-than-expected fall in retail sales and Chinese inflation numbers which were in line with analysts’ expectations. Retail sales in the US fell only 0.2% in May, much less than the 0.6% decline economists had predicted. A separate report from the Labor Department showed producer prices rose 0.2% last month, down from April’s 0.8% increase.

However, Federal Reserve Chairman Ben Bernanke warned that a failure to lift the government's $14.3 trillion debt ceiling would pose a potentially disastrous loss of confidence in America’s creditworthiness.

Among stocks, US shares of Finnish handset maker Nokia gained 2.5% and Apple rose 1.8% after the companies agreed to settle all patent litigation. Best Buy surged 4.6% after the it reported better-than-expected first-quarter earnings. On the other hand, Bank of America was the biggest declining Dow component, falling 1.6% in trade.

The Dow climbed 123.14 points (1.03%) to 12,076.11, its biggest rise this month. The S&P 500 rose 16.04 points (1.26%) to 1,287.87 and the Nasdaq Composite surged 39.03 points (1.48%) to 2,678.72.

Markets in Asia were mixed in early trade on Wednesday despite decent gains in the US markets on Tuesday. In another development, China on Tuesday reported that its industrial production rose 13.3% last month, higher than a 13.1% expected rise. However, worries about economic growth weighed on investors.

The Shanghai Composite fell by 0.18%, the Hang Seng declined 0.19%, the Seoul Composite lost 0.21% and the Taiwan Weighted was down 0.66%. Among the gainers, the Jakarta Composite rose 0.71%, the KLSE Composite gained 0.34%, the Nikkei 225 added 0.14% and the Straits Times climbed 0.23%.

Back home, the (RBI) on Tuesday said non-banking financial companies (NBFCs) cannot open subsidiaries or enter into joint ventures abroad without its permission. The move is aimed at regulating the credit system to the advantage of the country.

It said investments will be permitted only in those entities having their core activity regulated by a financial sector regulator in the host jurisdiction or country.