Key domestic developments to watch out for : (i) Favorable changes on the political front may give the government headroom on moving ahead on the critical economic agenda. (ii) A domestic fuel (Diesel/LPG/kerosene) price hike remains the most eagerly awaited event. The timing and quantum of a fuel price hike will be a key test of the government's ability to drive a political consensus and its resolve on subsidy rationalization as well as a move ahead on reforms. (iii) Any resolute move by the government to put RBI, in its latest monetary policy review, maintained the status quo on repo rates and CRR, citing the apparent inflationary pressures. However, it cut SLR by 24% to 23%, in an attempt to free up some bank lending towards more productive segments, albeit we wonder how many banks will benefit from SLR relaxation as the system as a whole is already invested in SLR securities at ~28%.

Looking forward, there is little scope for RBI to change its monetary policy stance this year. The central bank is expecting inflation to remain around 7% through March of next year, and is likely to remain on hold for the rest of 2012. Provided there is no further flare-up in global commodity prices, and growth remains well below 7%, the RBI could see prices flattening enough and the output gap widening sufficiently to embark on policy easing from March 2013 onward. The RBI could cut policy rates by 100bps through the course of 2013, although inflation risks could persist and compromise the magnitude of rate cuts. If there were major fiscal consolidation measures undertaken in the coming months and/or if both global and domestic growth weakened sharply to impose a disinflationary impact on the economy, then the RBI could cut more.

Eoin Treacy's view Investor anxiety towards India's governance has been an issue for a number of years but for as long as the government was delivering on economic reforms it did not hamper the ability of the stock market to outperform. However as pledges to further liberalise the economy, tackle corruption, cut red tape and modernise the country's infrastructure went unfulfilled investors began to become reticent about their long-term ambitions for India. At least in part as a result of failures to tackle bureaucratic calcification, inflation has remained persistently high and the Rupee has been among the weakest currencies globally.

Against this background, last week's widespread blackouts will be seen by some as an additional signal of failed development policy. Looked at another way we can ask does this event improve the chances of a favourable policy response? The performance of the stock market suggests investors are becoming more bullish.

Following an impressive rally, the Nifty Index retested the 2008 peak in late 2010 and has held a progression of lower rally highs since. The Index hit a medium-term low in December and has trended higher this year. It is now testing the psychological 5400 and a sustained move above 5600 would greatly increase the chances of a reassertion of the overall bull market.

Of the Indian ADRs and GDRs HDFC Bank's ADR listed in New York is one of the more interesting. It has been largely rangebound since late 2010 and has rallied towards the upper boundary over the last month. A sustained move below the 200-day MA would be required to question medium-term scope for additional upside.