Indian markets were the third worst performing markets in the month of September among Asian markets. For the month of September, the Sensex lost 1.4 per cent.

Resolve of domestic institutions would be tested

However, if the selling by foreign funds continues for a month or so, we could see markets at significantly lower levels than what they are now. It would now be a test of resolve and immense volatility in the next few weeks . Many analysts believe that another 5 per cent fall for the markets from here would be a good buying opportunity.

All eyes on the Reserve Bank of India

While Monday is a holiday, all eyes would now be on the Reserve Bank of India's 2-day Monetary Policy meet, beginning on Oct 3 and ending on Oct 4. There would be a press conference in the afternoon. Most analysts are predicting a status quo policy, as inflation has been gaining momentum. With crude oil moving higher and consumer inflation overall edging higher, it is unlikely that the RBI would cut interest rates. However, the RBI in the past has surprised and considering that economic growth has slumped it may even cut interest rates.

Markets are still overpriced

The Sensex is trading at 23.42 times one year trailing EPS. This is extremely high by any stretch of imagination. Markets are clearly overvalued and this has largely to do with the 18 per cent jump that we have seen for the markets this year. If you have made reasonable amount of profits, it maybe time to take some money off the table.

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