Despite concerns over a slowdown in global economic recovery, the Indian equity markets are expected to remain positive as investors hope for a monetary easing by central bank, stable rupee and more reforms in the offing.
Notwithstanding the positive bias, volatility in the Indian markets can flare up on account of major domestic and international monthly data on jobs, eight core industries (ECI), fuel prices and automobile sales, market watchers said.
Analysts pointed out that the most important trigger for the markets will be the fourth bi-monthly monetary policy review of the Reserve Bank of India (RBI) slated for September 29.
An easing of key lending rates is expected to restore investors' confidence, prop up sales of interest in sensitive sectors like automobile, capital goods and real estate.
"In the coming week, we expect some volatility in the markets ahead of the RBI monetary policy and announcement of some important global data. Any announcement of a rate cut by the central bank can trigger the markets in the positive direction," Vaibhav Agrawal, vice president, research, Angel Broking, told IANS.
Even though the markets have already discounted a 25 basis points worth of cut by the RBI, the language used by the RBI governor in his assessment of the economy will be closely monitored to give further cues on the future of rate cuts.
"The language that RBI uses is very important, specifically on the CPI (consumer price index) trajectory, given the monsoon deficit and wearing-off of the base effect," Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.
"The overhang of weaker global growth, especially in China, and uncertainty on the US Fed rate hikes would contribute to more volatility."
India Inc. expects a rate cut by the RBI during this review. Industry feels that the upcoming review might be the last chance to cut rates in this calendar year before inflation spirals up and that the review comes just after the US Fed's decision not to hike its own rates due to global economic uncertainty.
"The government has reportedly said that there is a favourable environment for monetary policy action by the central bank," said Shreyash Devalkar, fund manager, equities, BNP Paribas Mutual Fund.
"Banking stocks have witnessed some long build-up, whereas realty stocks have been seeing some buying action as well."
Not just equities, but even the Indian rupee is counting on a rate cut.
Though a token reduction of only 25 basis points "won't do much" for the rupee, market watchers said, but a "booster dosage" of nearly 50 basis points might do the trick in spurring both the equity and currency markets.
"All eyes will be on the RBI policy. Markets have already discounted a 25 bps rate-cut, whereas a 50 bps cut can be a surprise move which will have a positive impact on domestic equities leading to a recovery in the rupee," Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.
The rupee has continued on its downward trajectory. It fell for the fourth consecutive day against the US dollar on Thursday, down 17 paise at 66.16 to the dollar, against its previous close of 65.99.
"The EM (emerging markets) sentiment is weak and the EM currencies have further depreciated. This (rate cut) will drive the local sentiment," Nevgi added.
However, fears of the US rate hike, as the US Fed has raked up the issue for discussion, concerns over the slowdown in the Chinese economy and upcoming monthly data on select industrial growth, fuel price revision and automobile sales can flare up volatility.
"US macro data and (Fed chair) Janet Yellen's speech, trend in global markets, monthly sales volume data and interest of foreign portfolio investors (FPIs) will dictate the trend on the bourses," said Gaurav Jain, director with Hem Securities.
Concerns over global economic recovery, the Chinese economy, slipping commodity prices and a debt-defying con job by an international auto major had depressed Indian equity markets by over one percent in the just concluded week.
The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) fell by 354.5 points or 1.35 percent to 25,863.50 points from its previous weekly close of 26,218 points.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) too declined. It plunged by 113.4 points or 1.42 percent to 7,868.50 points.
(Rohit Vaid can be contacted at rohit.v@ians.in)
