The appointment of a new Reserve Bank of India (RBI) Governor is expected to give a positive fillip to the Indian equity markets during the upcoming week.
Market observers cited other major factors such as caution over the increased chances of a US rate hike, derivatives expiry, fluctuations in global crude oil prices and the pace of foreign funds inflow to have a bearing on movement of key indices.
Come Monday, the equity indices are expected to open on a mildly positive note following the government’s decision on Saturday to appoint economist and banker Urjit R. Patel as the next Governor of the RBI to succeed Raghuram R. Rajan.
"This is a positive development as Patel knows about RBI’s functioning. Equity markets are expected to give a mildly positive reaction to the appointment," said Dhruv Desai, Director and Chief Operating Officer of Tradebulls.
Patel, 52, a Deputy Governor since January 2013, will take over as the 24th chief of India’s central bank on September.
"Equity market’s would welcome this change. The increased chances of the continuation of the same policies at the RBI with this appointment will add positivity in the equity markets on Monday," said Anand James, Chief Market Strategist at Geojit BNP Paribas Financial Services.
Apart from the RBI, cues from the US Federal Reserve (US Fed) on when the next rate-hike cycle might start will also draw investors full attention.
"Investors seem to be cautious as they are waiting for the Federal Reserve Chairperson speech next week at Jackson hole where she can make some key announcements," said D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors.
US Fed Chairman Janet L. Yellen is expected to speak on "The Federal Reserve’s Monetary Policy Toolkit" At the Federal Reserve Bank of Kansas City Economic Symposium: "Designing Resilient Monetary Policy Frameworks for the Future" at Jackson Hole, Wyoming.
Yellen will speak on next Friday. This will be her last public speech before the September FOMC (Federal Open Market Committee) meet.
Earlier, the US FOMC had decided to maintain its key lending rates due to a weak domestic jobs market and bleak global economic outlook.
A hike in US interest rates can potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India.
"Looking at the way, markets responded to US Fed President’s comments last week, September policy action has a big surprise potential," James said.
According to James, the F and O (Futures and Options) expiry could inject some volatility in the key equity markets which have been largely lacklustre last week.
"Macros would also be back into focus with eight core industries (ECI) as well as GDP (gross domestic product) figures scheduled to be released later in the week," James added.
Devendra Nevgi, Chief Executive of ZyFin Advisors pointed out that investors will keep a watch on the earnings results.
Companies like Tata Power, Hindustan Petroleum and NTPC are expected to announce their quarterly results in the coming week.
"As the markets, especially the mid cap rallies, it’s important to watch if the earnings match the rise too, in line with the expectations," Nevgi said.
"The liquidity v/s valuations debate will continue. Globally, one should keep an eye out on crude oil prices which have crossed $50 per barrel."
Nevgi added that the global capital flows remain in favour of Emerging Markets (EMs), which probably are offering a floor to the equity markets.
Provisional figures from the stock exchanges showed that the week witnessed a significant influx of foreign funds worth Rs 1,256.89 crore.
Figures from the National Securities Depository (NSDL) disclosed that foreign portfolio investors (FPIs) were net buyers of equities worth Rs 2,874.23 crore, or $430.06 million, on August 16, 18 and 19.
Nonetheless, the rupee depreciated on a weekly basis, weakening by 17 paise to 67.06 against a US dollar from its previous close of 66.89 on Aug 13.
The Indian equity markets had traded with volatile sentiments to end on a flat-to-negative note in the just-concluded week.
Weak domestic macro-economic data and increased chances of a US rate hike had dented investors’ sentiments.
Although the curtailed trading week witnessed a substantial inflow of foreign funds and value buying at lower levels, the markets fell prey to profit booking and a weak rupee, following certain major domestic and global cues.
The 30-scrip sensitive index (Sensex) of the BSE edged down 75.40 points or 0.27 per cent during the week to end at 28,077 points.
Similarly, the wider 51-scrip Nifty of the National Stock Exchange (NSE) slipped by 5.25 points or 0.06 per cent to 8,666.90 points.