Sensex likely to rebound strongly

Mumbai: The odds are in favour of Indian shares rebounding strongly this week, led by banks, property developers and automobiles as a possible cut in interest rates on Tuesday will boost their outlook.

For the first time in four years, the Reserve Bank of India (RBI) is widely expected to lower the benchmark short-term interest rate on January 29 - by a quarter percentage point to 7.5 per cent - after the Federal Reserve slashed US rates by 75 basis points last week.

If the Fed lowers rates again after a scheduled policy meeting on January 29-30, it will be another boost for stocks after last week's turbulence when the Sensex plunged more than 10 per cent during intraday in the first two days before pulling back.

"All eyes are on the RBI," said equity trader Mohit Patel.

"A rate cut will be a strong signal for the market to rally, particularly sectors like real estate and automobiles which are so sensitive to interest rates."

He said last week's market slump created opportunities for cash-flush retail investors, who could not grab the bargains because of restrictions imposed by brokers.

"There's pent-up demand waiting in the wings," Patel said. "The Sensex should climb above 20,000."

Roller-coaster

Helped by a nearly 12 per cent rebound on the last two days, the Sensex ended at 18,361.66 on Friday, still down 3.4 per cent on the week.

Yet it was a remarkable recovery after the index had tumbled to as low as 15,332.42 at one time on Tuesday as foreign funds sold stocks in the wake of US economic woes.

Jittery brokerages dumped shares they held as margin from investors adding to the slide, and refused to accept buy orders unless cash was paid up front.

Brokers refused to accept cheques that would take about two days to settle, leaving hundreds of thousands of investors fuming.

In seven sessions to Thursday, foreign funds pulled out $3.6 billion from Indian shares, but there is optimism the money will start to flow in again as the huge cuts in US rates make higher-yielding Indian assets attractive.

Still, the RBI has traditionally been conservative about its monetary moves, preferring to focus more on inflation than growth. Before the Fed's hefty cuts last week, the the Indian central bank was expected to hold rates at its policy review this week.

Data released on Friday showed annual inflation at 3.83 per cent on January 12, the highest in over four months, but below the RBI's target of about five per cent by end-March.

Traders said Finance Minister P. Chidambaram's comments had reinforced expectations the RBI would lower its repo rate, which is the central bank's benchmark short-term rate that was last cut in March 2004.

"The interest rate differential between India and the US has widened,'' Bloomberg quoted Chid-ambaram as saying in an interview at the World Economic Forum in Davos.

"That's something the central bank will take on board, I suppose, before it decides its policy."

India's repo rate is now 7.75 per cent, 4.25 per centage points above the US federal funds rate of 3.5 per cent.

The repo rate was raised five times between June 2006 and March last year, when the RBI was worried about an overheating economy, but has kept it unchanged for the last 10 months.

On course

Prime Minister Manmohan Singh said on Friday the Indian economy was on course to maintain its robust growth with a global slowdown having only a nominal impact.

"The economic fundamentals of India are sound and as of now we are convinced we can sustain 9-9.5 per cent growth," Singh said in New Delhi.

India's foreign reserves climbed $3.16 billion in the week to January 18 to a record $285 billion, underpinned by heavy flows into new share sales like Reliance Power's $3 billion offering.

Emaar MGF Land Ltd, about 40 per cent owned by Dubai developer Emaar Properties, will launch on Friday an IPO, aiming to raise up to $1.8 billion. The sale, which closes on Feb-ruary 6, is being offered at an indicated price of band of Rs610-Rs690 a share.

Quarterly earnings

Focus will also be on quarterly earnings this week from many blue-chip companies.

They include Larsen & Toubro and Indian Hotels tomorrow; Maruti Suzuki, SAIL, Suzlon Energy, Tata Power and Sterlite Industries on Tuesday; and Bharti Airtel, DLF, Mahindra & Mahindra, Bajaj Auto, NTPC and Hindalco on Wednesday.

Tata Steel, Tata Motors, Reliance Communications, Hero Honda Motors, IOC, Punj Lloyd, ACC, Unitech and GAIL India report their quarterly earnings on Thursday, followed by Ambuja Cem-ents on Friday.

The writer is a journalist based in India.