Trends in the Chinese indices, coupled with domestic macro-economic data and a rebound in crude oil prices, are expected to guide the Indian equity markets during the upcoming week.
Even the last of the domestic quarterly earning results, the rupee's trajectory and the interest of foreign investors will give vital cues to the next moves of the markets.
The biggest trigger cited by market observers will be the direction taken by the mainland Chinese stock markets, which will form a major theme for not only equity markets, but also the rupee.
The Chinese stock markets will open after a week's holiday on account of the Chinese New Year celebrations. The Chinese mainland stock markets were closed from February 8-12.
"The most important thing global markets would wait for very eagerly next week is how financial markets in China open," Pankaj Sharma, head of equities for Equirus Securities, said.
"That would reflect the confidence investors show in the future of Chinese economy after so much global turbulence this week."
Sharma also highlighted the importance that the last of Q3 numbers will have as a driving force behind the equity markets.
Devendra Nevgi, chief executive of ZyFin Advisors, predicted: "The markets will be driven by global risk sentiment and corporate earnings especially the domestic bank earnings."
"The RBIs (Reserve Bank of India's) response to tight liquidity and INR weakness would be watched. How government responds to capitalisation of the banks' NPAs (non-performing assets) issue now or in the budget is important."
However, Indian markets are expected to open on a firm footing following a healthy rebound in US markets and rising crude oil prices on Friday.
"With US markets ending in the green on Friday, we may see some short term recovery in the markets on Monday," Vaibhav Agarwal, vice president and research head at Angel Broking, told IANS.
"However, the trend continues to remain negative and we may see the markets drift lower in the coming days."
According to Agarwal, a key trigger could be a strong growth-oriented union budget, which allows the central government to maintain its fiscal deficit targets.
Gaurav Jain, director with Hem Securities, elaborated that movement of crude oil prices, domestic macro-economic numbers and the rupee-dollar movement will dictate trends on the two major indices.
Global crude oil prices have slightly edged-up to above $27 per barrel from their recent sub-$26 lows.
Macro-economic data such as the monthly industrial production, retail and wholesale inflation figures are expected to impact investor sentiments during the upcoming week.
Dhruv Desai, director and chief operating officer at Tradebulls, noted: "The month- end major event of the union budget would be the major trigger for Indian markets and the ongoing turmoil in global markets may continue."
Market participants will keenly watch out for any announcements by the central government on the upcoming union budget.
Market participants are hopeful that the central government may increase expenditure, announce tax concessions and pave the way to reduce the NPAs levels of the banking sector.
Analysts added that hopes of an upward movement will give investors some reprieve after last week's bloodbath at the equity markets.
Poor earning results and negative global cues had dragged the domestic equity markets to their lowest levels in over 21 months. Markets declined for four consecutive sessions to post their biggest weekly loss since July, 2009.
Despite some recovery on Friday due to short-covering, both the bellwether indices ended the week below the psychologically important levels of 23,000 and 7,000-point marks.
On a weekly basis, the barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) plunged by 1,630.85 points or 6.62 percent to 22,986.12 points.
Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) receded by 508.15 points or 6.78 percent to 6,980.95 points.
(Rohit Vaid can be contacted at rohit.v@ians.in)
