The market is set to scale new highs, provided there are no negative surprises from the Fed meet and RBI credit policy review scheduled during the week.

Rising crude oil prices, disappointing earnings and write downs in the US financial sector could lead the US Fed to cut the rates further. This should give a fillip to the equity markets. The upside will, however, not be free from volatility as foreign investors including hedge funds look to restructure their portfolios.

The opening on Monday is expected to be firm, riding on the back of positive global cues and spill-over from Friday's buying. The US markets closed higher on Friday due to revived hopes of a further cut in the Fed rates. Dow Jones closed up by 135 points (1 per cent) and Nasdaq rose by 53 points (1.94 per cent).

The last seven days saw one of the best weekly gains as the Sensex zoomed by 1683 points or 9.6 per cent due to buying by domestic investors. Since the market regulator has cleared the air on PNs, foreign investors are expected to get back into the buying groove.

Momentum buying could catapult the Sensex to 20k in the coming days, according to an FII representative based in the country.

A Citi group report suggested that the RBI might hike CRR rates to suck out excess liquidity from the system. An increase of one per cent would draw out $7 billion from the system.

The Indian markets look extremely stretched. The Sensex valuations have gone up 19.28 per cent to 26 per cent since the lows triggered by the sub-prime crisis two months ago. Taiwan and Kospi, on the other hand, have not changed much.

Since India, China and Hong Kong are now richly valued, other markets have a potential to go up. Some leading FIIs may re-assess the weightage given to different markets, depending on extent of the rise registered till date and the potential for future appreciation. This can lead to a slowdown in fresh fund flows into markets such as India, albeit over a period of time.