Further economic reforms expected from the second-half of the Budget session and volatility in global stock markets will influence the trajectory of the key Indian equity indices next week, opined analysts. Further, market observers pointed out that crude oil price fluctuations, combined with the stress being faced by the banking sector, direction of foreign fund flows and the rupee`s movement against the US dollar, will also impact investors` risk-taking appetite.
"Next week, markets would closely track the movement in the banking index, especially the PSU bank stocks, for any recovery -- and capital goods stocks," Devendra Nevgi, Founder and Principal Partner, Delta Global Partners, told IANS.
"The global market sentiment and FPI (Foreign Portfolio Investors) flows would be closely watched, as, in the month of February, FPIs were net sellers to the tune of Rs 18,619 crore."
"The DII (Domestic Institutional Investors) support remains crucial for markets. (February net purchases of Rs 17,813 crore.)"
According to Vinod Nair, Head of Research, Geojit Financial Services, the long-term outlook for the economy "continues to be strong, while valuation for the market is still high".
"Prevailing volatility in the market is due to concerns on inflation, rise in 10-year bond yield and US Federal Reserve`s rate hike trajectory," he said.
Besides global cues, investors are expected to keep a close watch on the upcoming macroeconomic data point -- the Nikkei India Composite PMI Output Index -- and the rupee`s movement against the US dollar.
On the currency front, the rupee weakened by 96 paise to close at 65.17 against the US dollar for the week ended March 1.
"News of BJP doing well in the assembly polls in three key North East states augurs well for political stability. We are in a pre-election year, where every small and large victory will get bigger than usual importance. As a result, we expect the rupee to strengthen towards 65 levels during the first half of the week," Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities, told IANS.
"Weakness in the US dollar, post Trump`s announcement on trade tariffs, should add momentum to the long rupee trade. On USD-INR, we are expecting a range of 64.70 to 65.30 levels on spot."
On technical levels, the underlying short-term trend of the National Stock Exchange`s (NSE) Nifty50 remains bearish.
"Technically, with the Nifty resuming its short-term downtrend after a minor pullback witnessed last week, the underlying trend remains down," said Deepak Jasani, Head of Retail Research for HDFC Securities.
"Further downsides are likely once the immediate supports of 10,422 points are broken."
Last week, despite better-than-expected macro-economic growth indicators, the key Indian equity indices closed the week on a flat-to-negative note as global cues and the stress faced by the banking sector, eroded investors` risk-taking appetite.
However, a minor pullback rally led by healthy GDP growth data for the third quarter of 2017-18 helped pare some losses in the truncated week that ended Thursday, with Holi being celebrated on Friday.
Consequently, on a weekly basis, the barometer 30-scrip Sensitive Index (Sensex) of the Bombay Stock Exchange (BSE) declined by 95.21 points or 0.28 per cent to close at 34,046.94 points.
Similarly, the wider Nifty50 of the NSE closed slightly in the red. It closed at 10,458.35 points -- down by just 32.7 points or 0.31 per cent from its previous week`s close.