Geo-politics in Korean peninsula, US Fed meet to drive equities this week

The Indian equity markets are expected to take cues from geo-political developments in the Korean peninsula, as well as the policy meet of the US Federal Reserve, during the upcoming week starting September 18, according to market analysts.

In addition to global cues, experts maintain that the direction of foreign fund flows will have a major bearing on the stock markets.

"On geo-political concern over Japan, North Korea will set the tone for markets in the coming new week. While peaceful talks can have a positive impact, any more test-firing (of missiles) can lead to a full-scale war over the Korean peninsula," Dhruv Desai, Director and Chief Operating Officer of Tradebulls, told IANS.

According to Devendra Nevgi, Chief Executive of Zyfin Advisors, the upcoming week is likely to be dominated by action from global central bank meetings -- the US Federal Reserve and Bank of Japan.

"While a 25 basis points hike in Fed funds rate is almost certain, given the stronger macro data and higher CPI (Consumer Price Index) levels, the language for the future path remains crucial. Hence, global risk sentiment remains important, especially the North Korean developments," said Nevgi.

The US Fed's Federal Open Market Committee will meet on September 20-21.

The risk of a US Fed rate hike and delay in earnings revival has accelerated foreign institutional investors' (FIIs) outflows, said Vinod Nair, Head of Research, Geojit Financial Services.

"However, DIIs (domestic institutional investors) inflows continue to be strong -- supported by higher mutual fund inflows -- while continuation of this remains to be seen," said Nair.

Provisional figures from the stock exchanges showed that FIIs continued with their selling spree and offloaded stocks worth Rs 3,365.4 crore during the week. This outflow was offset by continuous injection of funds by the DIIs, which bought scrips worth Rs 3,835.21 crore.

Figures from the National Securities Depository (NSDL) revealed that foreign portfolio investors (FPIs) divested equities worth Rs 119.46 crore, or $18.79 million, during September 11-15.

"Currently, domestic market is under-performing versus other EMs (emerging markets) due to peak valuation... Going forward, actions from global central banks will curtail the near-term liquidity and domestic market may under-perform," added Nair.

During the week, the Indian rupee weakened by 28-29 paise to close at 64.07-08 to a US dollar from its previous week's close at 63.79.

On technical levels, Deepak Jasani, Head - Retail Research, HDFC Securities, explained: "Technically, with the Nifty breaking out of a range this week, the intermediate trend remains up."

"Further, upsides are likely once the Nifty crosses the immediate resistances of 10,132. Downside support to watch for emergence of weakness is at 9,913," Jasani told IANS.

Last week, the equity markets rode the bulls with a fillip given by healthy domestic industrial production data and persistent pumping in of funds by domestic investors.

The two key Indian equity indices reclaimed their psychologically important 32,000 and 10,000 levels. Despite that, the equity markets ended the week on a muted note as investors booked profits.

On a weekly basis, the Sensex of the BSE surged by 585.09 points or 1.85 per cent to close at 32,272.61 points, while the Nifty50 closed at 10,085.40 points, up 150.6 points or 1.52 per cent.