Market week ahead: RBI MPC outcome, F&O expiry, global cues to dictate Sensex, Nifty trend

After dropping 1.7% on Friday, the benchmark Nifty has turned negative for the year 2022—leaving investors with the predicament of either buying stocks at a discount or staying on the sidelines and waiting out the global turmoil in markets.

Last week, US Federal Reserve raised interest rates by 75 basis points, causing the dollar index to surge against a bunch of other currencies and roiling stocks from Wall Street to Dalal Street.

On Friday's closing basis, the Dow Jones Industrial Average was down over 20% from its January 5 intraday record high amid concerns that aggressive policy tightening by the Fed will push the economy into a recession. When markets opened in India on the day, Foreign Institutional Investors (FIIs) dumped stocks worth Rs 2,900 crore, taking the FII sell-off to Rs 5,000 crore in just two days. This contributed to the fall of the Indian Rupee, already facing pressure from the unabated rise of the dollar index, with the tender slipping to its all-time time intra-day low of 81.26 against the greenback. After a volatile session, the rupee settled at 80.99 per dollar, against Thursday’s level of 80.87, but only after the Reserve Bank of India (RBI) intervened to help the local currency recoup some losses against the dollar. The central bank has been selling dollars from India’s fast-depleting forex reserves in order to protect the local currency from heavy global turmoil. As of September 16, India’s forex reserves were down to $545.65 billion—the lowest since October 2, 2020—from $631.53 billion on February 25, when Russia attacked Ukraine.

Next week is expected to be equally volatile, if not more, as two key events would keep domestic investors on edge: the monthly F&O expiry on Thursday and RBI’s Monetary Policy Committee decision on Friday.

Most analysts expect RBI to raise interest rates by another 50 basis points on September 30 in a bid to further curb retail prices and bring Consumer Price Index (CPI)-based inflation to 6%. Since May, India’s central bank has raised repo rates by 140 basis points; a 50-basis-point hike will take interest rates to a three-year high of 5.9%.

“Globally, inflation, Central Bank rate increase action, energy prices and recession remains area of concern. Crude oil prices have broadly remained stable but the Indian currency have depreciated in recent days. For the domestic market, one of the key near-term event to watch out for is the upcoming RBI monetary policy,” said Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities.

Global cues, FII action, and Rupee volatility will also decide market direction next week, say experts.