Where will RBI's monetary policy take Indian markets this week; here's what analysts say

Indian markets finished on a negative note last week, with Sensex tumbling by over 95 points or 0.27% at 35,227.26 and Nifty 50 lower by 40 points or 0.37% at 10,696.20. These two benchmarks declined despite India retaining its tag as the fastest growing economy in the world. India’s GDP growth rate came in at 7.7% in Q4FY18 compared to 7% in Q3FY18. The outcome of GDP was taken positive by Indian rupee against US dollar index, however, domestic indices reacted oppositely. Going ahead, this week Indian markets performance will depend on the Reserve Bank of India's three day monetary policy meet. 

Analysts at Moneywise Financial Services said, “There are expectations that with the inflation inching up and growth getting firmer, the RBI Monetary Policy Committee (MPC) would turn hawkish and give guidance on hike in interest rates.

Indian economic expansion for the quarter ending March 2018 came in at 7.7%. Consumer inflation for the month of April came at 4.58% which is well above the RBI guidance of 4% over the medium term. 

Moneywise added, “Combination of weaker Rupee and surging oil prices is a threat not only for the current-account deficit, but also inflation.”

Viral Acharya, the deputy governor in charge of monetary policy has already indicated last month that he will vote for a withdrawal in monetary accommodation in June. 

Ashika Institutional Research said, “. On the forthcoming week outcome of the RBIs monetary policy meeting will dictate the trend where the Committee will meet on 4-6 June 2018, there are expectation that with inflation inching up and growth getting firmer RBI may take a hawkish stance.”

Karvy Stock Broking said, “For the week ahead, the index has supports at 10558 followed by 10,417 while resistance is pegged at 10,785 followed by 10,929 levels. On the options front, maximum Put open interest stood at strike price 10,600 followed by 10,200, while maximum Call OI was at 11,000 followed by 10,700 and 10,800. Considering the data facts above, we expect the Nifty to move in the 10,550 to 10,900.” 

Angel Broking said, "There was a good start for the week on Monday but suddenly mounting concerns over ITALY crisis in the midst of the week brought some nervousness in our markets as well. However, our markets did not give much weightage to this development as we saw decent recovery from lows."

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It added, "if we look at the strength in the banking index, it now portrays some other picture. Hence, going ahead, we would be quite watchful how market behaves around 10780 – 10800. If we see sustainable moves beyond this zone, we may expect index continuing this move towards 10850 – 10900 in coming days."

As for rupee Anindya Banerjee, analysts at Kotak Institutional Equities said, “We hope RBI remains committed to the real rate corridor, otherwise it can have adverse impact on the value of the Rupee.”

Banerjee added, ““Bonds are expected to be under pressure, as oil prices have bounced and US yields have found support around 2.80% on the year. At the same time, a strong GDP growth report will bolster the chances of a RBI hike soon. RBI is expected to move on rates, if it has to keep to its commitment on real rates.”

Currently, India’s repo rate stands at 6%. Consequently, the reverse repo rate under the LAF remains at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25%.