The progress on US debt ceiling talks, domestic inflation numbers and second quarter earnings of companies are expected to keep investors busy in the truncated trading week ahead.
Financial markets will be shut on Wednesday on account of Id-ul-Zuha. Though investors expect US political parties to resolve the debt ceiling, market, participants said if the discussions go down to the wire, it would hurt sentiment. In 2011, a similar showdown between the parties was resolved due to some last-minute negotiations but it led to ratings agency Standard and Poor's stripping the US of its top-notch credit rating, sparking a sharp selloff across global markets.
"In the last couple of days, the general feeling pervading the market is that there will be an amicable resolution. The proof is the rally we have seen across global markets. There is no precedent that says the US could default on its interest obligations. So, the market rests assured," said Sachidanand Shukla, economist at Axis Capital.
The BSE Sensex through the week rose 3.1 per cent to close on Friday at 20,528. The NSE Nifty gained 3.2 per cent to end at 6,096.
Shukla said if an amicable resolution was not reached, the consequences could be "disastrous", as there would be huge risk-aversion moves across markets globally.
Such an event could also see foreign flows into the country stopping abruptly. "Foreign institutions have been and will keep investing in Indian markets, as the overall sentiment in the market has been positive over the past few days. But the flows could stop abruptly if there is some unfavourable decision regarding the debt ceiling," said Sudip Bandyopadhyay, chief executive officer at Destimoney Securities.
Foreign institutional investors were net buyers at Rs 3,133 crore through last week, while domestic ones were net sellers at Rs 1,823 crore.
Analysts expect a weak start to the week, owing to the lacklustre industrial production data issued on Friday after market hours. The government will release the September inflation data, consumer and wholesale, on Monday.
"The IIP Index of Industrial Production) numbers have been disappointing and the market could open weak on Monday. The inflation numbers coming out on the same day would be more keenly watched," said Kaushik Dani, head of equity, Peerless Mutual Fund.
A lower inflation number would be cheered by the markets, as it could keep the Reserve Bank from further raising the repo rate. A higher inflation figure could see the key policy rates being tightened by RBI in its October 29 policy review, market men said.
Among key earnings, Reliance Industries' September quarter results' announcement on Monday will be closely watched. The numbers are expected to be largely in line with market expectations. Any deviation could swing the markets either way, owing to the stock's large weightage in the broader BSE Sensex (8.7 per cent) and NSE Nifty (7.2 per cent).
Market participants are confident the TCS results on Tuesday will not spring any negative surprise, especially since the Infosys results on Friday beat Street expectations. With stakes high on the TCS stock, any negative surprise could hit the stock hard, cautioned analysts.
The outlook for private banking stocks is better than those of public sector banks. The latter sector's results could be burdened by the decline in quality of assets. Private sector banks have further been split into borrowers and lenders in the overnight market. RBI's move in July to raise the Marginal Standing Facility could see the margins of lenders such as IndusInd, one of the largest borrowers, being squeezed.
"The rally in the top six-seven stocks in the Nifty has made the overall trend bullish. However, the broader market outlook is still bearish," said Shardul Kullkarni, senior technial analyst, Angel Broking. "Traders can initiate shorts if the Nifty slips below 6,045. Then, it could fall to 5,875. On the upside if the Nifty crosses 6,150, it could touch 6,220."