- Official data on inflation, factory activity will be released on Thursday
- Analysts expect retail inflation around 5% by March
- After a pause in December, rate cut likely in February, they add
Macroeconomic data along with foreign fund flows and the Federal Reserve's monetary policy are expected to influence the Indian equity markets next week, according to analysts. Additionally, the rupee's movement against the US dollar and the progress of US-China trade deal as well as crude oil price fluctuations will impact investors' risk-taking appetite, they add.
"The major trend which is developing is a rally in the commodity markets, especially metals. The US dollar has begun to see overhead supply, EU economic data is improving," Sahil Kapoor, chief market strategist, Edelweiss Professional Investor Research, told news agency IANS.
"A phase 1 US-China trade deal and dovish US Fed may make this trend more visible," he further said. "As suggested earlier, Nifty has entered a consolidation phase which played out last week. It now seems that fresh upmove may begin as we enter deeper into December month."
In terms of macroeconomic data, investors will look forward to the release of industrial production, retail and wholesale inflation figures next week.
These data points hold significance as the Reserve Bank of India (RBI) in its last monetary policy review kept the key lending rates intact thereby prioritising rising inflation over grim economic growth.
The National Statistics Office is slated to release the macroeconomic data points of Index of Industrial Production and Consumer Price Index on December 12, followed by Wholesale Price Index and India's November trade figures the next day.
"We expect the inflation to remain close to or above 5 per cent by March 2020, which means that a rate cut in the next MPC in February 2020 is highly unlikely," said Siddhartha Khemka, retail research head, Motilal Oswal Financial Services.
"We continue to maintain that there will be no more rate cuts unless inflation falls back towards 4 per cent. Thus there is a good probability of a prolonged pause over the next 3-4 quarters."
Apart from macroeconomic data, the rupee's movement against the US dollar will influence investors' sentiment.
According to Sajal Gupta, head forex and rates, Edelweiss Securities, the rupee might not exhibit any further strength in the coming week.
The rupee is expected to move in a range of 71.10-71.80 during the week, as against its Friday's close of 71.1950.
In addition, technical charts showed that the National Stock Exchange's Nifty50 entered into an 'Engulfing Bear' candle formation suggesting bearishness.
"Last hope for bulls is placed at 11,880, if index breaches that level then further lower levels is possible in the index," said Deepak Jasani, retail research head at HDFC Securities.
"On failure to do this, index may show positive or sideways movements in the next week."