Indian stock markets were under pressure this week. The Nifty 50 has been bearish for seven consecutive weeks – the longest trend in the last six years. Higher crude oil prices, rising US Treasury yields, geopolitical tensions and brisk FII selling led to less appetite for risk among investors.

Despite the subsequent recovery due to softer oil prices and value buying, the Nifty fell by around 0.88% this week. Foreign investors sold the most. This month till September 25, they have collected around Rs. 18,531 crore was withdrawn, while domestic institutional investors withdrew Rs. 52,617 crores was bought and sold.

Experts believe that the movement of the Indian stock market next week will depend on crude oil prices, global bond yields, geopolitical developments and FII investments. US economic data and Federal Reserve statements will be watched for signs of interest rates and global liquidity, while domestic industrial data will reveal the pace and strength of India’s growth.

Could a price cut bring some relief?

Crude oil will continue to be a key driver for Indian equities as higher prices continue to impact inflation, corporate margins and the domestic macro-economic environment. Vinod Nair, head of research at Geojit Investments, said in an ET report that investors are closely watching the US-Iran dispute and possible resumption of diplomatic talks, as well as the US-China talks.

Nair said that although crude oil prices eased over the weekend, inflationary concerns persisted due to high volatility, which affected market sentiment. In contrast, India’s flash PMI estimates for September were better than expected, reflecting strong activity in the manufacturing and services sectors.

He said rising US yields are putting pressure on investment flows to emerging markets, making external factors more influential than domestic macro-economic relief.

Hariselvan Radhakrishnan, founder and CEO of HST Wealth, said in an ET report that Brent crude remaining at $105-106 per barrel is too high to provide any significant relief at the macro-economic level.

Radhakrishnan said progress in the US-Iran talks could help reduce the geopolitical premium in oil prices, while heightened tensions or supply disruptions could further add to inflationary pressures.

Ponmudi RA, CEO of Enrich Money, said in an ET report that domestic macro-economic conditions and corporate margins are under pressure as Brent crude prices remain above $100, though the recent marginal decline in oil prices has provided some relief.

Ponmudi said that if prices continue to fall, this could provide further support to domestic equities, while this trend could change rapidly if the situation in the Middle East worsens. He also mentioned Iran’s seven-day proposal that has been given to the US. It aims to end the ongoing conflict and reopen the strategically important ‘Strait of Hormuz’.

He said if the talks move forward, the development could ease concerns about disruptions to global energy supplies, which could also reduce the geopolitical risk premium in crude oil. However, the proposal will depend on US approval, so the market will be watching for further developments in the talks.

Will global liquidity remain a challenge?

Special attention will also be paid to global bond yields and upcoming US economic data. That’s because investors are assessing the Federal Reserve’s policy and its impact on money flows to emerging markets.

Radhakrishnan said US economic data will be the main focus. Labor-market indicators, inflation data and manufacturing data will determine expectations about monetary policy.

Radhakrishnan said the better-than-expected data could keep Treasury yields and the dollar higher, leading to tighter fiscal conditions for emerging markets and pressure on the rupee, foreign portfolio flows and Indian equity valuations.

Conversely, weak data could ease concerns about interest rates, lower bond yields and create room for a relief rally in risk assets, he added. Radhakrishnan said the US 10-year Treasury yield, currently hovering around 5.2 percent, will be another major drag on global risk appetite.

Nair said domestic IIP data will test the strength of industrial activity, while US job openings, GDP, core PCE deflator and PMI data as well as comments from Federal Reserve officials will determine expectations about interest rates and global liquidity.

Will Nifty stabilize?

Continued foreign sales have pressured domestic benchmarks, while strong domestic institutional partnerships have provided some support. Nair said midcap stocks underperformed largecap stocks amid broader risk appetite as domestic benchmarks fell due to continued sell-off overseas.

Ponmudi said the market is oversold after seven straight weeks of decline, while strong DII participation could support intermittent recovery efforts. However, he said, a sustained recovery in the market would depend on stability in crude oil prices, global yields and geopolitical developments as well as reduction in FII selling. Radhakrishnan said that domestic industrial and manufacturing indicators will help gauge whether India’s growth momentum can cope with increases in energy and borrowing costs.

Can Nifty save 23,000 level?

The technical situation is still under pressure, and the 23,000 level remains important as immediate support. Ponmudi said the overall technical framework of the Nifty 50 remains weak and the index is trading below key moving averages. On the upside, the 23,200 level is an immediate resistance zone, Ponmudi said. If the index stays above 23,300, it may bring some stability and help recovery towards 23,500 levels. However, unless the index firmly returns to this range, selling pressure may remain in the recovery efforts. On the downside, the 23,000 level is an immediate and important support, he said. If the index breaks strongly below 23,000, selling pressure may increase and the index may move towards the 22,800 level.