Investors, there's a lot to test your nerves this week

This week heralds the Year of the Dragon, according to the Chinese lunar calendar.That means China will be in celebration mood for most of this week (in fact, many markets across Asia are shut today for the New Year). Not so for the rest of the world, however.

This week has some key events that have the potential of souring the mood of investors, especially in India.

Here’s a quick run-down of the events that will be on top of mind for markets.

The first event, and probably the most important from an Indian perspective, is the Reserve Bank of India (RBI) policy meeting tomorrow. There are expectations that the RBI could cut the cash reserve ratio - the proportion of total deposits that banks must keep with the central bank - to boost liquidity in the financial system. However, almost no economist or top brokerage expects a policy rate cut to be announced given that manufacturing, or core, inflation continues to remain high.

The worst-case scenario for investors is if the RBI does nothing at all - no CRR or policy rate cut. That could send markets tumbling.

It’s also bad news for the economy, which has been straining under the pressure of 13 rate hikes since March 2010. Local demand has already slowed; now, exports are getting hit because of Europe’s snowballing debt crisis and a sluggish US economy. Without a rate cut, the economy will just continue to stumble along.

The second event will be the release of some widely-watched corporate results this week. India’s largest car maker, Maruti Suzuki, releases today its results for the quarter ending December. Several widely-tracked banks – Bank of India, Bank of Baroda, Yes Bank and Kotak Mahindra Bank – are also set to release results during the week. L&T, Sterlite and Cairn India are some of the other biggies expected to announce results.

According to a report in Mint, of the 176 companies that have reported results so far, earnings have grown by a mere 6.6 percent - the slowest in 11 quarters. Interest payments, not unexpectedly, were the highest in four years.

This week’s results are likely to confirm that trend of slowing profits. However, more than the results, investors will be interested in knowing the outlook of various companies as that will set the tone of future expecations.

The third event will be what happens with Greece. The indebted country has yet to strike a crucial debt agreement to avoid a default.Last week, talks to seal a deal in which creditors lose up to 70 percent of the value of their loans languished as several key issues remained unresolved.

A deal will allow Athens to receive a second bailout package from other European governments and the International Monetary Fund, and cut Greece’s debt from an estimated 160 percent of its annual economic output to 120 percent by 2020, according to an AFP report .Without additional funds, Greece will not be able to pay the 14.5 billion euros in debt due 20 March. If Greece defaults, it will trigger a fresh round of crisis in the eurozone – and more panic in financial markets.

The fourth event to watch will be the two-day US Federal Reserve Policy meeting, which begins on Tuesday. While Fed chairman Ben Bernanke is expected to keep the key policy interest rate at near zero, investors will be eagerly awaiting the release of quarterly forecasts on interest rates, which will be a first for the US central bank, according to a CBS report .

The forecasts will include one chart of when the Fed Reserve predicts it will begin raising interest rates and another chart showing individual Fed members’ predictions for the rate at the end of 2012, 2013 and 2014. The charts are part of the Fed’s efforts to make communications with the public more open, the report said.