Indian equity markets are expected to be volatile in the upcoming week due to escalating geopolitical tensions in West Asia, the Reserve Bank of India’s recent policy decision, foreign fund outflows, and increasing US bond yields. The previous week saw benchmark indices closing in the negative, setting a cautious tone among investors for the week ahead. The Sensex dropped 117 points to 74,243, while the Nifty fell 50 points to 23,367.
Market participants are closely watching the deteriorating situation in West Asia, where the US military targeted Iranian coastal radar and surveillance sites in response to drones launched by Iran towards the Strait of Hormuz. Concerns over potential disruptions to global energy supplies and shipping routes have heightened due to subsequent strikes on surveillance facilities in Goruk and Qeshm Island. These factors could impact crude oil prices and global investor sentiment.
The Reserve Bank of India’s decision to maintain the repo rate at 5.25 per cent has garnered attention. RBI Governor Sanjay Malhotra highlighted concerns over rising energy prices and supply-chain disruptions linked to the West Asia conflict while evaluating the inflation outlook. Additionally, the RBI raised investment limits for Non-Resident Indians and Overseas Citizens of India in equity instruments to boost capital inflows.
Foreign investor activity remains a key concern for the market, alongside global interest rate expectations. Rising inflation worries in the US led to higher Treasury yields last week, with the two-year Treasury note yield reaching a 15-month peak. The increase in bond yields may reduce the attractiveness of equities compared to fixed-income investments, potentially leading to heightened volatility in stock markets worldwide.
