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Markets are likely to give RBI "the benefit of doubt" and stabilise at current levels, a report by global brokerage firm Barclays said.
According to the research note, the jump in volatility following the tightening of liquidity by the RBI on July 15 is likely to move lower and current levels could prove an attractive entry point into the market.
"We think markets are likely to give the RBI the benefit of the doubt and stabilise at current levels," the report said adding that investors should stay on the sidelines and monitor developments in the coming weeks.
In a volatile trading session, the 30-share benchmark index Sensex, which had lost nearly 450 points in the previous session, lost another 68.16 points, today to 18,664.88 after shuttling between 18,811.46 and 18,551.35.
Meanwhile, rupee has lost 13% since May and yesterday it fell to an all time low of 61.80 against the dollar.
On Raghuram Rajan's appointment as RBI Governor, Barclays said, would give the government breathing space to come up with a more credible road map to address currency weakness and outflows.
In order to restore market confidence, the authorities need to change the strategy and come up with a strong package of measures addressing both short-term flows and the need to stimulate growth and reduce the current account deficit, it added.
However, a turn for the worse in global fixed income markets may present additional challenges, the report noted.
