Indian equities are set for another volatile week, with investors weighing the RBI's monetary policy decision, the opening salvo of the second-quarter earnings season, foreign portfolio flows and an uncertain global backdrop.
The domestic market enters the week on a cautious note after a holiday-shortened trading week saw the benchmark indices slip below a key psychological level.
Rising crude oil prices, elevated US Treasury yields and persistent foreign selling weighed on sentiment, while steady buying by domestic institutional investors provided some support.
"Indian equities had a difficult, holiday-shortened week which saw benchmarks slip below a key psychological level as a worsening global backdrop overwhelmed domestic support," said Vinod Nair, head of research at Geojit Investments.
Nair said surging crude prices and rising US bond yields have narrowed the India-US yield differential, putting pressure on the rupee and increasing concerns over imported inflation.
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Foreign investors remained net sellers, although domestic institutional buying helped absorb a substantial portion of the outflows. The RBI's policy decision is expected to be the biggest domestic trigger for markets.
Investors will closely assess the central bank's stance on interest rates, inflation and currency stability amid heightened external pressures. The earnings season will also come into focus, with investors assessing whether corporate profitability can maintain momentum.
Nair expects second-quarter earnings to be softer than the first quarter, which could keep market sentiment fragile.
On the global front, US payroll data, PMI readings and minutes of the Federal Reserve's latest meeting will influence expectations around the US rate trajectory and bond yields.
Any meaningful easing of tensions in West Asia could, however, provide a sharp relief to risk assets.
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Nair advised investors to remain selective, focusing on companies with strong earnings visibility and healthy balance sheets, while long-term investors could use market weakness to gradually accumulate quality stocks.
(With PTI inputs)
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