Investors look towards US bond market, RBI policy meet for next cues

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Investors will keep a close watch on the US bond market and Monetary Policy Committee (MPC) meeting during October 6-8 which could give directions to the market in the coming days.

Break in bullish momentum

Last week, it was their worst weekly performance since April for the benchmark indices. The BSE Sensex ended at 58,765.58 after falling about 2% from its high, while the NSE Nifty closed at 17,532.05 points.

Investors are fearful that rising US bond yields could see foreign portfolio investors pulling out of the domestic market. Further, there is speculation that RBI may signal a reversal of the stimulus measures it announced in response to the Covid-19 pandemic.

According to a report in The Economic Times, rising inflationary concerns have increased expectations of the US Federal Reserve’s faster withdrawal from its assets purchase programme.

The report quoted Piyush Garg, chief investment officer, ICICI Securities, as saying that investors needed to watch out for rise in US bond yields which was likely to cause a correction. He said that risk was rising in the market and correction was likely. He said that Indian markets could under-perform.

Nilesh Shah, managing director, Kotak Mutual Fund, said that the markets will be watching US interest rate movement carefully whose rise could result in further correction, according to the report. A different view

Several technical and derivative analysts are, however, hopeful of the Nifty touching 18,000 in October. Rahul Sharma, head-technical and derivatives research at JM Financial Services, said that he was hopeful that Nifty could go up to 18,250 and 18,600 “as long as 17,400 was sustained”.

Meanwhile, Barclays said, the RBI will take more steps towards normalising policy. Some experts, quoted by the newspaper, said they expected the Reserve Bank to reduce the width of the corridor between repo and reverse repo rate. Experts also said that they expected RBI to also raise the repo rate, however, they refrained from speculating on the timing of the announcement of these developments.