New Delhi: The Reserve Bank of India's mid-quarter monetary policy review on and continuing talks on the so-called US fiscal cliff will dictate the near term trend on the stock bourses this week, say experts.
"Uncertainty will remain on cards initially over RBI's policy and then over the US fiscal cliff," Vikas Jain, MD, Aditya Trading Solutions said.
"We should see some correction this week, after breakthrough rally of past few weeks, as the central bank does not seem ready yet to cut rates on Tuesday," he added.
Indian markets have remained largely range-bound in the last one trading week in the absence of a major trigger.
It is widely expected that RBI will on December 18 keep the lending rate unchanged at 8 percent in view of WPI-based inflation still trending above its 5-6 percent comfort level.
"Despite demand-side moderation in inflation, the headline inflation rate still remains above the comfort zone and retail inflation remains elevated. Therefore, we continue to believe that the RBI is unlikely to move its policy rate in December," Bhupali Gursale, Economist, Angel Broking said.
We do, however, expect a 0.25 percent cut in the Cash Reserve Ratio as advance tax outflows and seasonal demand are likely to keep the liquidity situation tight, she added.
Inflation declined to 7.24 percent in November from 7.45 percent in October, fuelling hopes of a cut in rates soon.
The Indian stock markets are also likely to be affected by the progress of US fiscal cliff talks.
Democrats and Republicans have so far remained deadlocked during their third White House meeting on next year's budget.
Over USD 600 billion in tax increases and spending cuts are scheduled to start taking effect in January, 2013 unless the US Congress acts to avert them and the market will react to any news flow on this front, stock dealers said.
Traders said the market participants will also closely track the developments in the Winter session of Parliament which will end on Thursday. The key economic reform Bill which are pending before Parliament include Banking Laws Amendment Bill, Insurance Laws (Amendment) Bill, Micro Finance Institutions (Development and Regulation) Bill besides Pension Fund Regulatory and Development Authority Bill.