Clearly, going forward international cues, particularly from Europe would determine the course of the market, apart from the RBI policy of July 31 and monsoons. If the ECB President is able to translate his action into words we would see a fresh round of buying emerge around the globe and in India as well.

However, fresh worries over Italy, Spain and Greece could put a spoke in the wheel to the rally. The U.S. Federal Reserve and the European Central Bank both meet next week amid investor expectations that there would be a fresh round of stimulus measures. This outcome of the meets would be eagerly anticipated by the markets.

Domestically, all eyes would be on RBI Governor D Subbarao as he announces the Monetary Policy Review on July 31, 2012. The focus is on what the Governor would do with repo rates.

In all likelihood Governor Subbarao might not cut repo rates, though one must say that inflation has softened a bit, but deficient monsoons has given rise to fresh worries. Also, the RBI had cut repo rates by 50 basis points in April, indicating that the repo rate cut then was front loaded.

While the indications are that the RBI would leave repo rates unchanged, there is a possibility of the Central Bank going ahead and cutting the cash reserve ratio requirements (CRR) for banks. In any case, one will have to wait for July 31 to see what the RBI does and also what the Governor says, which will signal a hawkish or a dovish stance as far as monetary easing is concerned. The markets are likely to react to a hawkish or a dovish monetary policy stance.

With most of the earnings of major companies already reported, the market is unlikely to take direction from there. However, though deficient monsoons have already been discounted by the markets, it would likely wait and study the impact of the deficient monsoons. Any major impact on inflation in the medium term could see the markets drop.

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