Fingers crossed as RBI ready to review policy, a flat opening may mark Tuesday

The Indian equity markets closed marginally lower on Monday in a volatile trading session ahead of the Reserve Bank of India’s (RBI) monetary policy review scheduled for Tuesday. On the sectoral front, banking, power and oil & gas stocks were under pressure. Sensex closed 45.86 points or 0.2% down at 24,824.83; while Nifty 50 settled 7.60 points or 0.1% down at 7,555.95. The broader markets outperformed benchmarks throughout the session; BSE midcap and smallcap indices rose over 0.57% and 0.29% respectively.

The sentiments were also under pressure, with the statement of Standard & Poor's Ratings Services that India will face challenges in sticking to the fiscal consolidation roadmap as the expected revenues may not be fully realised and subsidy cuts may be delayed.

U.S. stocks trimmed sharp opening losses to close slightly lower on Monday as investors looked past another drop in the price of oil and renewed concerns about U.S. and Chinese economic growth. The S&P 500 closed less than a point lower, or less than 0.1%, at 1,939. The Dow Jones Industrial Average reversed a 160-point loss to close 17.12 points, or 0.1%, lower at 16,449. Meanwhile, the Nasdaq Composite added 6.41 points, or 0.1%, quoting 4620.37.

U.S. factory activity contracted for the fourth consecutive month in January as an indication that the Federal Reserve will hold off on its plans to raise interest rates later this year. Its manufacturing index rose to 48.2% in January from 48%, above forecasts but still below the reading of 50% that signals expansion.

European markets finished lower on Monday, after losses across most of Asia on poor Chinese data and a drop in oil prices. The Stoxx Europe 600 dropped 0.2% to close at 341.61. Germany’s DAX 30 gave up 0.4% at 9,757.88 and France’s CAC 40 fell 0.6% to 4,392.33. The U.K’s FTSE 100 shed 0.4% to 6,060.10. Eurozone manufacturing activity also showed a slow start in 2016. The January reading of 52.3 was down from 53.2 in December.

Oil prices retreated from a big chunk of last week’s gains. WTI settled down by USD 2, or 6%, at USD 31.62 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, settled down by USD 1.75, or 4.9%, at USD 34.24 a barrel on ICE Futures Europe.

Asian markets traded in the mix on Tuesday, after a nearly flat finish at Wall Street overnight. Japan’s NIKKEI 225 index lost 0.20%, after rallying more than 5% over the previous two days on the Bank of Japan’s unexpected stimulus boost. South Korea’s Kospi index slid 0.38%. New Zealand’s benchmark gauge added 0.2%. Australia’s S&P/ASX 200 Index slid 0.48% before the nation’s central bank reviews its monetary policy. Chinese markets opened mostly in positive territory, with the Shanghai composite up 1.62%, after two consecutive sessions of declines.

While on domestic front, a SGX Nifty 50 index future for February series traded up 14.50 points at 7,574. Indian markets are likely to open flat. Investors must keep an eye on RBI policy review which will deliberate today. However it is unlikely that RBI will cut rates, since inflation has moved broad in-line with its trajectory.