Sensex and Nifty are set to open on a weak note as indicated by the Nifty futures traded on the Singapore Exchange ahead of Reserve Bank of India's monetary policy review. The SGX Nifty was down 0.19 per cent or 16 points at 8,783. Analysts say that the stock markets are likely to tread with caution in today's session and market participants would closely watch out for Reserve Bank of India's policy decision which will be out later in the day.
Falling inflation and the government's fiscal prudence in Budget might propel the Reserve Bank of India to cut the key repo or lending rate today, according to a Reuters poll of economists.
But most of the analysts say that the decision will be a close call for the RBI and some say that the central bank will shift the rate cut to April. The RBI will announce its monetary policy statement at 2:30 pm today. If RBI cuts its repo rate by 25 basis points to 6 per cent, it will be the lowest since November 2010.
The Sensex and Nifty on Tuesday snapped a four-day winning streak, a day ahead of the Reserve Bank of India's monetary policy announcement. The benchmark indices retreated from the four-month highs in Tuesday's session on caution whether the central bank will cut interest rates or not.
Raghu Kumar, director at domestic brokerage Upstox, says, "In our view, RBI is expected to cut repo rate by 0.25 per cent at its policy review on Wednesday. This rate cut would be supported by the modest consumer inflation, which is expected to undershoot the March 2017 target set by RBI and the continued fiscal consolidation attempted in the Union Budget for FY2018."
"If the interest rate is cut as per expectations, then we will see Nifty touch 8,900-9,000 level. On the contrary, if the interest rates are not cut or if the status quo remains unchanged, then we will see Nifty drift down to 8,500-8,600 level," adds Mr Kumar.
Meanwhile, Asian shares dipped from four-month highs on Wednesday and the euro was pressured as lingering political and economic uncertainty in the United States and Europe sapped investor confidence.
MSCI's broadest index of Asia-Pacific shares outside Japan ticked down 0.2 per cent, slipping further from Monday's four-month high. South Korean shares fell 0.6 per cent, leading the losses in early trade.
Overnight, Wall Street ended higher on Tuesday boosted by corporate earnings, while the dollar climbed to a more than one-week high on technical buying and political uncertainty in Europe.
Back home, rate sensitive- banking, realty and auto shares will react to the outcome of monetary policy meet, say analysts.
Among the Nifty companies, Hero MotoCorp and Cipla will declare their December quarter earnings later in the day.
Analysts expect Hero MotoCorp to report net profit of Rs 718 crore on sales of Rs 6,402 crore. And, for Cipla analysts expect the pharma major to report net profit of Rs 366 crore on sales of Rs 3,756 crore.
(With inputs from Reuters)