“Inflation remains sticky,” Harihar Krishnamoorthy, Mumbai-based treasurer at the Indian unit of FirstRand Ltd., South Africa's second-largest financial services provider, wrote I a Jan. 11 e-mail. “Thus it's unclear whether there could be space for larger policy cuts, especially in the light of deposit growth lagging advances in the banking sector.” While gains in the benchmark wholesale price Index slowed for the third straight month to 7.18 percent in December, official data showed Jan. 14, they have exceeded 7 percent since December 2009. Consumer prices accelerated for the third month in December to 10.56 percent, compared with increases of 5.84 percent in Brazil, 6.6 percent in Russia and 2.5 percent in
China.

RBI Governor Duvvuri Subbarao said yesterday inflation remains “quite high” and policy makers lack room for stimulus measures. Economic growth remains a concern, and India will be lucky if gross domestic product expands 5.5 percent in the year to March 31, he told management students in the northern Indian city of Lucknow. That would be the slowest pace in a decade. The central bank will lower its benchmark repurchase rate by 25 basis points, or 0.25 percentage point, to 7.75 percent at its Jan. 29 policy review, nine of 11 analysts said in a Bloomberg News survey last week.

Eoin Treacy's view China and Japan have garnered the majority of column inches over the last month as political and macro factors drove rallies from relatively depressed levels. However the Indian stock market's performance is also noteworthy.

Bottlenecks in the supply chain and an inefficient bureaucracy have long contributed to not only high inflation but the sticky nature of this phenomenon. This is why Manmohan Singh's decision to embrace reform last year is so important. Inflation remains high but there is now the prospect that some of the factors gumming up the system will be dealt with.

The Rupee has at least stabilised against the US Dollar and a sustained move above INR56 would be required to question current scope for some additional firming.

The Bombay Banks Index continues to trend higher relative to the Bombay 500 Index and while somewhat overbought in the short-term, a sustained move below 1.72 would be required to question medium-term potential for further outperformance. In absolute terms, the Sector has returned to test its 2010 peak near 15,000 and while there is potential for a consolidation of recent gains in this area, a sustained move below the 200-day MA, currently near 13,000 would be required to question medium-term scope for additional upside.

The Nifty Index has rallied to test the 6000 area and appears likely to consolidate as it unwinds the overbought condition relative to the 200-day MA.

Among Indian ADRs and GDRs, HDFC Bank continues to unwind an overbought condition relative to its 200-day MA but a sustained move below $37 would be required to question medium-term scope for additional upside. ICICI Bank has held a progression of higher reaction lows since December 2011. While overextended relative to the MA in the short term, a sustained move below $40 would be required to question medium-term scope for continued upside. State Bank of India has a similar pattern.

In the technology sector, both Wipro and Infosys have rallied over the last two weeks to break their medium-term progressions of lower rally highs and sustained moves below their respective 200-day MAs would now be required to question recovery potential. Satyam Computer is testing the upper side of a first step above its base.