Market outlook: RBI policy stance, Q2 earnings, West Asia tensions key triggers next week

Indian markets enter the week focused on the RBI policy decision, growth projections and Q2 earnings after sharp losses pushed benchmarks lower. Easing West Asia tensions could trigger a relief rally, while global yields, crude prices and US economic data remain key factors

Mumbai: After a holiday-shortened week which saw benchmarks slip below a key psychological level as a worsening global backdrop overwhelmed domestic support, the Indian stock markets are geared up for the RBI policy decision and growth projections, along with the beginning of the Q2 earnings season.

A meaningful de-escalation in West Asia could trigger a sharp relief rally next week, according to market watchers.

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The RBI policy stance, inflation outlook and growth projections will provide important cues on the near-term trajectory of domestic interest rates and financial markets.

Last week, the bearish tone was evident from the start, with the Sensex declining 1.52 per cent on Monday, followed by relatively modest losses over the next two sessions before another 0.79 per cent decline on Thursday. Consequently, the Sensex shed 1,670.84 points to settle at 71,909.70, while the Nifty lost over 3 per cent to close at 22,421.95.

The weekly price action reflects a clear continuation of the corrective phase, with Nifty witnessing its eighth consecutive weekly decline, said analysts. From a technical perspective, the weekly RSI is placed at around 31.06, remaining well below the neutral 50 mark and indicating weak momentum.

The RSI is also significantly below its average near 46.27 and is approaching the oversold zone, suggesting that the index remains under pressure but may see intermittent technical pullbacks from lower levels, said analysts. On the upside, immediate resistance is placed at 22,800 and 23,000.

A sustained move above this zone would be required to ease the prevailing selling pressure and improve the short-term structure, they added. On the downside, support is seen at 22,350 and 22,180.

Global factors remain the dominant influence on market sentiment. Rising US Treasury yields, persistent inflation concerns and elevated energy prices keep investors cautious. The surge in long-term US bond yields also raised concerns over global financial conditions and the relative attractiveness of emerging-market assets. On the domestic front, economic activity remained resilient.

India’s industrial production growth accelerated to 8.0 per cent year-on-year in August from an upwardly revised 7.4 per cent in July. Manufacturing output grew 9 per cent, while electricity and gas supply expanded 12.3 per cent.

Developments in the energy market will remain a crucial trigger for market sentiment. Brent crude has retreated from its recent highs as crude exports through the Strait of Hormuz recovered closer to pre-war levels. The global macroeconomic calendar will also remain important, with key US high-frequency data, including the nonfarm payrolls report and ISM Manufacturing PMI, likely to influence market sentiment.