Indian shares are expected to climb steadily this week, settling down after recent volatility as foreign funds step up buying and local institutions boost exposure on robust corporate results, traders said on Sunday.
Some of them expected the key index to rebound to the psychologically important level of 6,000 points by the end of the week after some clarity on the market regulator's stand on participatory notes emerged.
Moody's upgrade of India's sovereign rating to investment grade and data showing good foreign fund buying would also keep sentiment upbeat, traders said.
"We should see a stable market. I see a slow and steady improvement as foreign funds come back after SEBI cleared up the uncertainty about participatory notes," said Ketan Jhaveri, a director at D H Securities.
He said quarterly results should start driving stocks once again after they were overshadowed by other issues last week.
Markets are closed on Monday for India's Republic Day holiday. Trading resumes on Tuesday.
Shares hit a one-month closing low on Thursday after a three-day sell-off sparked by fears the regulator would severely restrict hedge fund activity via participatory notes, worries foreign funds would exit in the run-up to general elections and a spate margin calls in a falling market. The Securities and Exchange Board of India (SEBI) said after the close of trade on Friday that foreign institutional investors could issue or transfer participatory notes only to regulated entities from February 3.
But crucially, it also said it would give foreign funds five years to wind down participatory notes already issued to unregulated entities.
These notes are derivative instruments issued to unregistered foreign funds that want an exposure to Indian markets without going through regulatory hassles.
Moody's Investors Services raised India to investment grade on Thursday, citing India's healthy external finances and vibrant economy, which helped the index bounce back on Friday.
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