Investors are expected to enter the Indian equity markets on a cautious note in the near term, with sentiments getting swayed by developments both in India and outside, such as the release of inflation and export data and the outcome of the US Fed meet, analysts maintain.
In fact, a fair amount of negative mood will prevail in the early part of trading on Monday since data on India's factory output was released after the closing bell on Friday.
It showed that the manufacturing sector pulled the general Index of Industrial Production down by 0.8 per cent in April. The impact will be seen on Monday, the analysts added.
The week ended Friday was not particularly conducive for the bulls as negative global cues, profit booking on previous rises and a mixed bag of macro-economic data saw two key Indian equity market indices end in the red, after two successive weeks of robust gains.
The 30-scrip sensitive index (Sensex) of the BSE lost 207.28 points or 0.77 per cent at 26,635.75 points, while the 51-scrip Nifty of the National Stock Exchange (NSE) was down 50.75 points or 0.62 per cent at 8,170.05 points.
In the week prior to that, the Sensex had tested the 27,000-point level once again for the first time since October 29 last year. Similar was the case with the broader 51-share Nifty, which had scaled the long-illusive 8,200-point mark -- again, for the first time since October 27 last year.
As per official data, foreign funds purchased net stocks worth Rs 1,492.71 crore during the week under review, while domestic institutional investors sold scrips worth Rs 925.42 crore.
The monthly data of Association of Mutual Funds in India (AMFI) showed there was a net inflow Rs 4,721 crore into equity mutual funds in May 2016.
Analysts said during the next few week the global developments that will be watched are Britain's June 23rd referendum if it should should leave or remain in the European Union (Brexit), as also the US Federal Reserve meeting on Tuesday and Wednesday.
On the domestic front, the main factors will be the movement of monsoon, release of wholesale and retail inflation numbers and the export-import data.
"Overseas, market sentiment was bordering on the positive after US Federal Reserve Chairwoman Janet Yellen said in a speech that short-term interest rates wouldn't be raised until there was more clarity about the health of the US economy and its outlook," said Brijesh Ved, Senior Portfolio Manager of BNP Paribas AMC.
After the hike in December last year for the first time in nearly a decade, the US Fed has kept the benchmark funds rate unchanged. It is felt the US economy may not be ready yet for another rate hike, especially after the disappointing monthly jobs report for May 2016.
"As a salve to domestic woes, the southwest monsoons hit the coast of Kerala earlier in the week. Markets are expected to trade sideways for a few days till the outcome of the Federal Open Market Committee meeting next week," Ved told IANS.
ICICI Securities had a similar take in its weekly market wrap. "On the global front, while the market continued to breathe easy over receding possibility of any US Fed rate hike, the concerns over 'Brexit' kept the global markets choppy," it said.
"Going ahead, global events and news flows such the US Fed meeting and subsequent action, Brexit (the referendum) and price movement of key commodities including crude oil would be the key monitorables for the markets," the ICICI Securities report added.
In an analysis, ICICI Direct said the Nifty is in an overbought state after the rally of over seven per cent in the previous two weeks.
"While overall bias remains positive, we expect the index to enter an intermediate consolidation phase in the coming sessions and oscillate between the broad range of 8,400-8,000 points to work off-overbought conditions."