New Delhi: The outcome of the US Fed meeting, which is widely expected to taper its USD 85 billion a month bond-buying programme, and the RBI's monetary policy outlook will influence the Indian stock markets in the week ahead, according to experts.
The US Federal Reserve will meet on September 17-18 and global markets, including India, are tracking whether the Federal Open Market Committee would reduce the monthly purchases of treasuries, brokers said.
India is among the markets that may be affected, at least in the short-term, as capital flows shift to the US as growth there recovers. Outflows would put more pressure on the slumping rupee, they added. Portfolio flows are a key tool to finance India's current account deficit.
Over the past week, the BSE benchmark Sensex has added 463 points, or 2.4 percent, the third week of gains.
"We believe that some tapering off is already priced in and to that extent, if the actual amount of taper matches expectations, it may not be taken negatively," said Dipen Shah, Head, Private Client Group Research, Kotak Securities.
The global financial markets were rocked when Fed Chairman Ben Bernanke said on May 22 that unwinding of the unconventional monetary easing was on the cards if the US economy recovers as per expectations.
The Sensex, which was hovering near the 20,000 mark in late May, hasn't been able to sustain gains above that level as market participants have been reluctant to add fresh positions until the Fed takes a call on tapering.
Newly-appointed RBI Governor Raghuram Rajan, a former IMF economist, postponed the central bank's mid-quarter policy review to September 20 from September 18 as he wanted to consider all major developments, including the Fed announcements and their effects on the markets.
While all eyes would be on Rajan's first monetary policy review, the continuing slowdown in both investment and consumption in the Indian economy has recently been aggravated by the RBI's liquidity tightening aimed at stabilising the rupee, which has tanked 18 percent since April 30.
The government is scheduled to release wholesale price index inflation data on Monday.
"Rate cut hopes are minimal due to pressure on the rupee. The appointment of a new Governor has fuelled the rally and boosted sentiment, but much needs to be seen in coming sessions, as to whether the market sustains this uptrend or not," said Rakesh Goyal, Senior Vice President, Bonanza Portfolio Ltd.
Expect volatility and some amount of confusion in the minds of the marketmen regarding the direction of the overall markets in the short term, said Nagji K Rita, Chairman & MD, Inventure Growth and Securities.
The rupee had on Friday settled at 63.48 against the dollar after touching a life low of 68.85 on August 28.