The stock market is likely to remain firm ahead of Diwali, as the financial performance of Indian Inc has so far not disappointed street expectations. However, the Reserve Bank of India's policy move could spoil the party at Dalal Street. With headline inflation showing no signs of any correction, market participants expect another rate hike of 25 basis points. The RBI is meeting on October 25 to decide on key interest rates. Corporates are mounting pressure on central bank to pause on current rate tightening, as they are already struggling to raise funds to meet capital expenditure. However, the RBI Governor, Dr D. Subbarao, has reemphasised that inflation must ease before the central bank can reduce interest rates, signalling a tight monetary stance for now. Sustained buying by foreign institutional investors helped Indian markets recover sharply last week. Markets even ignored the weak industrial growth for August on hopes that the global atmosphere would continue to be conducive, as Euro-zone is indicating some actions will be taken to contain the region's economic woes. The slowdown in industrial production is not an India phenomenon alone. The HSBC Emerging Markets Index declined to 51.9 in the third quarter of 2011 which, according to it, ‘is the slowest in nine quarters.' Of the big-four emerging markets, Brazil and India recorded the fastest rates of decline in new export orders. “Consequently, employment growth as measured across manufacturing and services eased to the slowest for nine quarters, reflecting a weaker rate of job creation in services and a stagnation of manufacturing employment. India recorded a decrease in headcounts for the first time since Q1 2009,” said HSBC report.
HBL
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