The trading activity in the domestic equity markets is likely to remain volatile this week as investors will focus on global cues such as the outcome of the US Federal Reserve meeting and the US banking crisis due to lack of local triggers, analysts said.
FII activity and movement in the rupee and oil prices will also be watched by traders as global trends have been dictating the direction of the local stock markets currently, they added.
Benchmark Sensex and Nifty declined by around 2 per cent last despite a recovery in the last two sessions due to selling in financials, IT, auto and banking stocks as fears of contagion of the US banking crisis kept investors on the edge.
The US banking crisis remained at the centre stage keeping the participants on their toes. Besides, the continuous outflow the foreign funds added to worries, analysts said.
"In absence of any major domestic event, the focus would be on the upcoming FOMC meet scheduled on March 21-22. Besides, movement in crude and trend of foreign fund flows will also be in focus for cues," Ajit Mishra, VP – Technical Research, Religare Broking Ltd said.
Traders are expecting the US Federal Open Market Committee to go for a lower 25 basis point cut or even pause the rate hike in its meeting as US inflation has eased to 6 per cent in February from 6.4 per cent a month earlier and the economy stares at a banking crisis.
"Easing US inflation provided confidence that the Fed would not opt for a harsh rate hike of 50 bps and might even consider taking a break during the March meeting," Vinod Nair, Head of Research at Geojit Financial Services, said.
Considering the 50 basis points rate hike by the ECB, all eyes will be on the US Fed and Bank of England, which are set to hold their policy meetings next week, Nair said.
"Domestic indices followed suit in-line with global markets which took a breather towards the end of the week in hopes of relief from the global banking turmoil. Global equities reversed their selling streak on reports of a rescue package for the beleaguered First Republic Bank, along with aid provided to Credit Suisse from the Swiss Central Bank, which would soothe concerns over global financial stability," he said.
According to Pravesh Gour, Senior Technical Analyst, Swastika Investmart Ltd, investors' confidence was negatively impacted by the turbulence in the US banking industry caused by Silicon Valley Bank's (SVB) bankruptcy and the closure of New York's Signature Bank.
Consistently unfavourable signs in global markets are encouraging investors to turn to safe havens such as the dollar and gold, while FIIs are withdrawing funds from the domestic market in response to the Indian rupee's depreciation."
On Friday, foreign institutional investors (FIIs) were the net sellers and sold Indian equities worth Rs 1,766.53 crore while domestic institutional investors (DIIs) were net buyers at Rs 1,817.14 crore.
"The pressure was visible across sectors wherein banking, financials, auto and IT shed in the range of 1-4 per cent. The broader indices too witnessed a fall and lost over 2 per cent each," Ajit Mishra said.
"Apart from this crude oil and the rupee will also play an important role in market movement. FIIs and DIIs will also be watched," Pravesh Gour said.
Foreign investors have put in Rs 11,500 crore in the Indian equities so far this month, mainly driven by bulk investment from the US-based GQG Partners in the Adani Group companies.
Going ahead, FPIs may take a cautious stance in their approach in the coming days following the collapse of the US-based banks, experts said.
Mishra said that markets may take a breather initially however the upside also seems capped. Nifty could face hurdles around the 17,250-17,400 zone while the 16,600-16,800 zone would provide the needed cushion, in case the situation deteriorates further.
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