MUMBAI: Markets are likely to remain volatile with a bearish undertone this week following US Federal Reserve's suggestion last week that it would scale back the $85 billion monthly bond-buying programme if the US economy maintained its momentum. The minutes of the latest Fed meeting released last Wednesday spooked global markets, with Japan's Nikkei losing 7% and Indian benchmarks recording their first weekly loss since mid-April. Sensex ended last week 582 points, or 2.9%, down while Nifty closed 204 points, or 3.3%, lower. Stock markets around the world have rallied because of the easy liquidity conditions in the US, Japan and Europe. Market analysts feel that any move to tighten the tap could result in a sharp correction in local stocks, given that the $8.75-billion selloff by domestic institutional investors this year have offset the $10.38 billion FIIs pumped into the secondary markets (FIIs have invested around $4 billion in the primary market). Besides, markets will also keep a close watch on the rupee, which fell for the third straight week last Friday, closing 0.98% down at 55.65, and monsoon forecast. A normal monsoon bodes well for most Indian companies, which benefit from rural demand. The other short-term trendsetter will be the expected $1.5-billion worth paper supply by promoters of listed private companies, which have to meet the market regulator's June 3 deadline for 25% minimum public shareholding. Markets will also keep an eye on crucial macroeconomic data - GDP growth for the March quarter and fiscal deficit for April as well as the US GDP for the March quarter. "Apart from the overarching concerns over what happens to the surplus liquidity that's floating around, the $1.5 billion worth supply expected by way of OFS could pressurise markets," said Yogesh Radke, head, quantitative research, Edelweiss Financial Services. Aseem Dhru, MD & CEO, HDFC Securities, expects the market to trade in a range between 19500 and 20500 this week. He said any monetary tightening by the Fed could be negative for stocks as markets around the world had rallied because the cheap money injected by the Fed and the Bank of Japan into their economies have found their way into risky assets such as stocks. Analysts expect pressure to be on high beta counters from banks, realty and capital goods, which have benefited from the rally that has been under way since mid-April after gold and crude oil prices began correcting. Realty and capital goods were the major losers last week followed by healthcare, oil & gas and power indices. "With the earnings season nearing its end, markets would wait for signs of monsoon and developments in global markets," said Sanjeev Zarbade, vice president - private client group research, Kotak Securities. "We continue to recommend a bottoms-up approach and would recommend investors to accumulate stocks having reasonable valuations, strong balance sheets and ethical management across sectors. Concerns/disappointments on the horizon include a failure to push through reforms in the budget session and elevated external trade deficit."

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