The final monetary policy review of the fiscal, amidst the third quarter results season and the interest of the foreign investors, is expected to direct the Indian equity markets in the upcoming week.
Moreover, the rupee's trajectory, followed by trends in the global commodity prices and fears of competitive devaluation of currencies, will decide on the positions investors take.
"The Reserve Bank of India (RBI) decision should dominate sentiments next week, though the present uptrend may continue a while longer," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
"PMI (Purchasing Managers' index) data scheduled for next week is expected to show an increase over last month, but a contraction nevertheless," he added
According to James, US macro-data such as GDP figures, as well as jobs numbers, will influence the decisions of investors.
However, hopes of on an interest rate cut will have investors hooked.
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The RBI is expected to conduct its sixth and final bi-monthly monetary policy review on February 2.
Expectations have been backed up by the Bank of Japan's decision on a negative interest rate to support the Japanese economy. The decision came after the US Fed maintained its status quo on key lending rates.
"The sentiment would improve for the time being, given the BOJ action and weaker days in US probably pushing the rate hikes further in the year," predicted Devendra Nevgi, chief executive of ZyFin Advisors.
The European Central Bank (ECB) has also indicated more stimulus measures in March.
Vaibhav Agarwal, vice president and research head at Angel Broking, said that overall, earnings will continue to remain on the weaker side, thus putting pressure on the markets.
"We expect markets to witness some selling pressure in the absence of any major domestic trigger, as FIIs continue to remain net sellers," Agarwal cited.
"With no rate cut expected in the RBI policy next week, markets will look towards the budget for some positive triggers in February," he added.
Pankaj Sharma, head of equities for Equirus Securities, also pointed out the importance of Q3 numbers as the driving force behind the equity markets.
"The attractiveness of equities in emerging markets is still under a question mark and we have not seen any substantial improvement there," Sharma noted.
"As earnings season progresses for Indian markets, we would also see Q3 numbers driving performance of individual stocks," he added.
The upcoming week will see the firms like Tech Mahindra, Indian Oil, DLF, Lupin, Tata Steel, Eicher Motor and Jet Airways unveiling their quarterly earnings.
However, the BoJ decision might stroke fears of another round of competitive devaluations, Agarwal pointed out. This will put further pressure on the rupee, which has been on a downward trajectory of late.
On a weekly basis, the rupee weakened by 16 paise at 67.78-79 (January 29) to a dollar from its previous close of 67.63 on January 22.
However, it touched a new 29-month low of 68.23 - its weakest since late August, 2013 - during the intra-day trade on January 28.
The weakness in the rupee value indicated a massive outflow of foreign funds from the Indian equity and debt markets.
The National Securities Depository Limited (NSDL) figures showed that FPIs (Foreign Portfolio Investors) were net sellers during the week ended January 29, 2016. They divested Rs.1,203.64 crore or $177.55 million in the equity and debt markets from January 25-29.
Similarly, data with stock exchanges disclosed that the FPIs sold stocks worth Rs.848.2 crore in the week under review.
The FPIs have been net sellers in every trading session with exception of January 1, 2016. In total FIIs have sold equities worth Rs.13,966 crore during January.
Nevertheless, data further showed that DIIs bought stocks worth Rs.1,807.86 crore.
DIIs have bought equity worth Rs.22,240 crore for January.
Domestic investors interest in the equity markets buoyed the barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) last week. It closed higher by 435.03 points or 1.78 percent to 24,870.69 points during the week ended January 29.
Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) gained by 141.1 points or 1.90 percent to 7,563.55 points.
(Rohit Vaid can be contacted at rohit.v@ians.in)