Expectations of a reduction in key lending rates, along with upcoming macro - economic data and quarterly earning results, are expected to set the tone for the Indian equity markets during the upcoming week.
According to market observers, investors' sentiments will be heavily influenced by cues by the Reserve Bank of India (RBI) decision on rates.
"This week, the focus will be on the RBI policy and the language on more policy rate cuts, though 25 basis points is the consensus, " Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.
Investors expect the RBI to cut key lending rates on the back of the union budget's fiscal prudence measures, reduction in small savings interest rates and low inflation.
The RBI will conduct its first bi - monthly monetary policy review for 2016 - 17 on April 5.
Vaibhav Agarwal, vice president and research head at Angel Broking, elaborated that the RBI review will set the direction for banking stocks, as well as the Indian markets.
"The markets, in our view, have already factored in a rate cut announcement, " Agarwal told IANS.
Pankaj Sharma, head of equities for Equirus Securities, cited: "The message from the government is loud and clear that the RBI should oblige now by cutting rates - - making money more easily available by making borrowing cheaper. "
"So, this will be the most important factor for Indian markets and as such, if the outcome is outside the range of a 25 - 50 basis points cut, it may be unexpected for the markets. "
Besides, global and domestic macro - economic data are expected to play a major role in setting the trajectory of the equity markets, explained Anand James, chief market strategist, Geojit BNP Paribas Financial Services.
"The PMI (purchasing managers index) data scheduled on Monday should ensure that the week should open on a tentative note, especially with the monetary policy announcement on April 5, " James explained.
According to James, other major global events like the release of FOMC (federal open market committee) minutes on April 6 will impact investors' sentiments.
Nevgi predicted that recently released US non - farm payroll data and higher PMI figures in China would help the equity markets.
In addition, the upcoming fourth quarter (Q4) earning results will be a major consideration for investors, James informed.
"As the week progresses, we could see the focus shifting towards Q4 earnings leading to stock specific action, rather than broad market moves seen in the last fortnight, " James added.
Sharma pointed out that the next four to six weeks for the equity markets would depend on how the corporate earnings look like.
"After an indifferent show in the last many quarters, it has become more and more important that the growth of earnings and visibility has to return sooner than later if the investor interest has to sustain, " Sharma noted.
Market observers added that a strong rupee can boost investors' confidence.
Bansi Madhavani, analyst, India Ratings and Research, told IANS: "This week, the rupee is expected to continue its strengthening bias even as RBI is expected to reduce policy rates. "
On a weekly basis, the rupee gained by 38 paise to 66. 24 - 25 (March 31) against a US dollar from its previous close of 66. 62 - 63 (March 23).
However, the equity markets can also enter into a consolidation phase with minor corrections, stated Nitasha Shankar, vice president for research with YES Securities.
"The Nifty and the Sensex could enter into a consolidation phase with minor corrections while broader markets may continue to outperform, " Shankar cautioned.
Dhruv Desai, director and chief operating officer, Tradebulls, told IANS: "We expect volumes to remain same over the coming few sessions and markets to continue to remain volatile due to the RBI monetary policy review. "
(Rohit Vaid can be contacted at rohit. v@ians. in)
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