Indian stocks are likely to remain sensitive to global cues next week, with developments in the West Asia conflict, crude oil prices and upcoming US inflation data expected to shape investor sentiment, according to analysts said.
Markets will also track foreign investor flows, movements in the rupee, global equities and domestic liquidity as investors assess the potential impact of geopolitical tensions and shifting expectations for US interest rates.
The outlook has become more complicated after stronger-than-expected US employment data reinforced expectations of resilient economic activity and raised questions over the Federal Reserve's policy path.
“This week is expected to remain highly sensitive to global monetary policy, crude oil prices and geopolitical developments,” Ajit Mishra, senior vice president of research at Religare Broking, said. Investors will also watch the rupee, foreign institutional flows and domestic liquidity, he added.
The Strait of Hormuz is likely to remain a key risk for Indian markets because any disruption to energy supplies could push crude prices higher, adding pressure on inflation, the external balance and corporate profitability.
Brent crude rose more than 8% last week, while West Texas Intermediate gained over 9%, as renewed US-Iran hostilities and concerns over the vital shipping route lifted the geopolitical risk premium in oil markets, according to Ponmudi R, chief executive officer of Enrich Money.
The focus now shifts to US inflation data, which could influence expectations for the Federal Reserve's September decision and, in turn, global bond yields and risk appetite.
Indian equities ended the previous week lower. The BSE Sensex fell 749.08 points, or 0.96%, while the NSE Nifty 50 declined 277.95 points, or 1.14%, extending its losing streak to four weeks.
"Indian equity markets remained volatile and under pressure during the week, with the Nifty-50 extending its losing streak to four consecutive weeks, the longest such stretch in five months, as intensifying US-Iran hostilities drove a sharp surge in crude oil prices and kept risk sentiment firmly on edge," Ponmudi said.
Global markets enter the week facing a familiar set of challenges, with the outlook hinging on US monetary-policy expectations, elevated crude oil prices and the evolving geopolitical situation in West Asia, he added.
(With PTI inputs)
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