There is only an 8.5% chance that Bernanke would not touch rates at all. However, several fundamental factors, like high crude prices, may lead the Fed to rethink a cut in rates. Foreign institutional investors are waiting in their wings for clearer signals to emerge.
This is clearly seen from the fact that they have managed to keep their interest in the market low for the past few days. They were net sellers on Monday and also on Tuesday in the previous week. Even their buying is subdued. It is the Indian institutions that have actually pushed the market beyond 20,000, reckon trade experts. A 50 basis point rate cut could again push up the Sensex to new levels, a 25 basis point will be in line with expectations and no rate cut by the Fed could see some widespread selling. Chartists believe that a pull-back from this position could even see the Sensex take a 10% correction by Diwali. All in all, the run up to the festive season will sparks flying around. Volatility is expected to be at its highest in the coming days.
Contributed by Yagnesh Kansara and Akash Joshi