Dalal Street Action Next Week: From RBI MPC, Q2 Results & Rising Global Tensions; Key Market Triggers?

The Indian stock market began October with a sharp decline, marking a sudden downturn after three consecutive weeks of gains. Dalal Street saw a dramatic sell-off driven by weak global cues and geopolitical concerns, breaking its winning streak and leaving investors on edge. The domestic indices fell drastically, primarily due to mounting fundamental challenges that encouraged short-term profit-taking.

As the second week of October approaches, all eyes will be on several critical factors that could steer the market. Key market triggers include the upcoming Monetary Policy Committee (MPC) meeting by the Reserve Bank of India (RBI), the July-September quarter earnings reports for the fiscal year 2024-25 (Q2FY25), and geopolitical tensions, including the Israel-Iran war. Crude oil prices, global cues, and foreign fund outflows will also play a major role in shaping market sentiment, alongside domestic and global macroeconomic data.

Dalal Street's Worst Week in Two Years

The benchmark indices on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) saw their steepest weekly losses in over two years. Both the Sensex and Nifty 50 faced their fifth straight day of losses in extremely volatile trading sessions, rattled by geopolitical tensions and foreign outflows.

For the week, the BSE Sensex tumbled by 4.6%, closing at 81,688.45, a three-week low, after dropping 808.65 points or 0.98% on the final day. Similarly, the NSE Nifty 50 slumped by 4.5%, closing at 25,014.60, down 235.50 points or 0.93%. This marked the worst weekly performance for both indices since June 2022, with Sensex losing 3,883.4 points and Nifty shedding 1,164.35 points over four trading sessions. The indices have now dropped over 5% from their all-time highs recorded on September 27, erasing gains from the preceding weeks.

Escalating Global Tensions

The market decline was broad-based, with all major sectors closing in the red except metals. Realty, auto, and energy stocks were among the hardest hit. Over the last five trading sessions, the Indian stock market lost a staggering Rs 13 lakh crore in investor wealth as widespread selling pressure took hold. The India Volatility Index (India VIX), which gauges market volatility, surged by 18.10% during the week, closing at 14.12. The broader market indices, while also suffering losses, fared slightly better than the largecap stocks, with losses between 2.5% and 3.2%.

Geopolitical tensions in the Middle East were a significant contributor to the market's volatility. Escalating tensions between Israel and Iran stoked fears of crude oil supply disruptions, leading to an increase in global oil prices. Meanwhile, the possibility of foreign funds shifting to China, which announced a series of economic stimulus measures, compounded the uncertainty in Indian markets.

Key Triggers in the Coming Week

As investors attempt to navigate through this turbulent period, the upcoming week presents several important market triggers that could either mitigate or exacerbate the volatility.

Q2 Results

The Q2FY25 earnings season is set to kick off with the much-anticipated results from Tata Consultancy Services (TCS), India's leading software services provider, on October 10. As the first major player to announce results, TCS will likely set the tone for the broader market.

RBI MPC Meeting

The RBI's Monetary Policy Committee (MPC) will hold its fourth meeting of FY25 from October 7 to 9, with the policy announcement scheduled for October 9. While the RBI has maintained its key repo rate at 6.5% since February 2023, market volatility is expected to persist leading up to the announcement. Banking stocks, particularly those sensitive to interest rate changes, will be monitored.

While analysts broadly expect the RBI to hold the repo rate steady, much will depend on the global economic environment, especially given the recent interest rate cut of 50 basis points by the US Federal Reserve, marking its largest cut in four years.

Foreign Fund Activity

Foreign institutional investors (FIIs) have turned net sellers, offloading Rs 40,511.50 crore in the cash segment, while domestic institutional investors (DIIs) continue to support the market with Rs 33,074.39 crore in purchases. This FII selling spree marks a shift from September's aggressive buying activity when foreign portfolio investors (FPIs) injected large inflows, recording their highest figures year-to-date (YTD). The diversion of foreign funds to China, triggered by the country's recent monetary stimulus measures, is seen as a major cause for concern in Indian markets.

Global Cues

The geopolitical landscape and global economic data will heavily influence market trends in the coming week. Escalating tensions in the Middle East, where Iran has launched 180 ballistic missiles at Israel, have already sent ripples across global markets. Meanwhile, Chinese authorities have reduced the reserve requirement ratio (RRR) by 50 basis points, further fueling expectations of stimulus measures to support its flagging economy.

Investors will also focus on key economic data releases, including the US Federal Open Market Committee (FOMC) meeting minutes, the US Consumer Price Index (CPI) for September, initial jobless claims, and UK GDP data. Commodity prices, particularly crude oil, the US dollar index, and US macroeconomic data will be key to determining market sentiment.

Oil Prices Surge

The global crude oil market has been hit by volatility due to geopolitical tensions in the Middle East. Brent crude futures closed the week up by 0.6% at $78.05 per barrel, while US West Texas Intermediate (WTI) crude futures rose 0.9% to settle at $74.38 per barrel. For the week, Brent crude prices surged over 8%, their highest weekly gain since January 2023, while WTI gained 9.1%, its best performance since March 2023. In India, crude oil futures surged by 3.07%, closing at Rs 6,350 per barrel on the multi-commodity exchange (MCX).

The threat of a region-wide war following Iran's missile strikes on Israel has stoked fears of supply disruptions, but gains in oil prices have been tempered by US President Joe Biden's warning to Israel against targeting Iranian oil facilities.

IPOs and Listings

The primary market will see moderate action this week, with a handful of initial public offerings (IPOs) and listings. Garuda Construction and Engineering's IPO will open on October 8 in the mainboard segment, while Shiv Texchem's IPO will also begin subscription in the SME segment. The listings of six SMEs are also slated, with no mainboard listings scheduled for the week.