The local market is likely to open on a cautious note, ahead of the Reserve Bank of India’s (RBI) monetary policy review. Volatility would also be a part of the trading session, as seen in the futures and options expiry week. Heavy-weights like HUL, Sterlite Industries, Dr Reddy’s Labs, Indiabulls Securities and UltraTech Cement, among others will announce their quarterly numbers today.

On the global front, Wall Street continued its winning spree with the key indices closing with modest gains on Monday. The upmove was supported by merger and acquisition announcements, buyback plans and dividend prospects. Tracking the US markets, the Asian pack was mostly in the green in early trade today. The SGX Nifty was up 22 points at 5,763 compared to its Monday’s close of 5,741.

The Indian market opened on a positive note yesterday, boosted by good quarterly numbers announced by State Bank of India and Reliance Industries over the weekend. Overcoming initial hiccups, the indices touched their day's highs around noon. Choppiness was evident, ahead of the RBI monetary policy review, to be announced tomorrow. Analysts opine that the central bank might succumb to economic pressures and resort to a rate hike in a bid to bring down spending and curb price rise. The market pared some of the gains and stayed in a narrow range in post-noon trade till the end of the session.

As expected, the market moved in the positive direction today. It traded above Friday's closing for the entire day. The Sensex ended 144 points higher at 19,151 and Nifty ended 47 points higher close at 5,743. The market has stopped falling and is making a basing action. The RBI will conduct a review of its monetary policy tomorrow. The market direction will be clear only thereafter. Our sense is that the stock prices have factored in a 50 basis point hike. The market may decline following the monetary policy but that may set the stage for a rally.

Markets in the US closed with modest overnight, boosted by corporate announcements. Smurfit-Stone Container Corporation vaulted 27% as Rock-Tenn Company agreed to buy the packaging company for $3.5 billion. Intel Corporation gained 2%, boosting the technology sector after the world’s largest chipmaker added $10 billion to its buyback plan. Warren Buffett’s Berkshire Hathaway Incorporated rose 3.2%, the most since June, amid speculation the company may start paying a dividend this year.

Meanwhile, president Barack Obama’s State of the Union address later today will focus on reducing deficit, providing additional jobs and putting the economy back on track.

The Dow extended rose 108.68 points (0.92%) to end at 11,980.52. The index hit a fresh 52-week high intra-day at 11,982.94, within kissing distance of the 12,000 mark The S&P 500 added 7.49 points (0.58%) to close at 1,290.84, while the Nasdaq gained 28.01 points (1.04%) to 2,717.55.

Markets in Asia were mostly in the green in early trade on Tuesday, boosted by positive cues from the US overnight. Material stocks received a boost with the London Metal Exchange’s base metal index rising 0.4% on Monday, gaining for the second day in a row.

The Hang Seng gained 0.44%, the Jakarta Composite advanced 0.87%, the Nikkei 225 surged 0.94%, the Straits Times rose 0.24% and the Seoul Composite was 0.85% higher. On the other hand, the Shanghai Composite declined 0.55% and the Taiwan Weighted lost 0.06%.

Back home, the RBI on Monday said the government should start spending to ease the liquidity situation that has significantly tightened towards the end of 2010.

“It is expected that the government would spend in order to meet its committed expenditure for the year during the ongoing quarter, which is the last quarter of the financial year,” the apex bank said in its macroeconomic review released yesterday.

The liquidity conditions tightened significantly to the point of imposing constraints on growth in the last few months of 2010, it said.

As of December, the government surplus increased at Rs1,44,437 crore compared to Rs93,425 crore in November, 2010. With government cash surplus beginning to flow back into the system, the liquidity position would improve, it added.