Attractive valuations along with expectations of another round of key lending rate cut and stock specific movement might just lift the subdued sentiments in the domestic equity markets during the upcoming trade week.
Lower-than-expected growth in quarterly results as well as a massive flight of foreign funds have dampened the stock markets lately.
"Oversold readings on large, mid and small cap indices abound. The market is now set for a rebound as the 38 days correction cycle has been repeating for the last three sessions," said Sahil Kapoor, chief market strategist-research, Edelweiss Investor Research.
"The underperformer of this fall, the auto index has eked out a reversal this week. Expect Nifty to climb to 11,650 points in the short term. Over the next two weeks -- two rate cuts -- are expected, one each from the US Fed and the RBI (August 7)."
According to Deepak Jasani, head of retail research for HDFC Securities, though markets ended with the third consecutive week-on-week loss on July 26, the rate of fall has reduced over the last three sessions and "in fact the markets ended in the positive on last Friday".
"This positive momentum could continue early next week with US Fed meet outcome (on July 31) and corporate results impacting further momentum in the markets," Mr Jasani said.
One of the key factors to look out for next week will be the ongoing Q1 results, analyst opined.
Companies such as DLF, Dr Reddys Labs, GIC, Axis Bank, Hero MotoCorp, NMDC, Tech Mahindra, Indian Oil Corp, Bharti Airtel, HDFC, ITC, Power Grid Corp and State Bank of India are expected to announce their Q1 earning results this week.
"The expectation for Q1 is muted with PAT (profit after tax) growth of 11 per cent YoY compared to high valuation of 19x on a one-year-forward basis. However, there are concerns that earnings growth may not revamp as fast as it was expected about a quarter back," said Vinod Nair, head of research at Geojit Financial Services.
"While FIIs, one of the important liquidity providers, are on risk-off mode, a downgrade in earnings and slowdown in liquidity will continue to impact the market in the near term," said Mr Nair.
Besides the Q1 results, investors will look out for macro-economic data points such as the eight core industries' (ECI) output and the country's fiscal deficit numbers.
Additionally, the Purchasing Managers' Index (PMI) manufacturing and services' figures, as well as monthly automobile sales data will be released during the week.
In terms of currency, the rupee on a weekly basis weakened by 9 paise to close at 68.90 from its previous week's close of 68.81 per greenback.
"Rupee broadly traded around 68.85 to 69.12 range during the week. Expect rupee to test weaker levels within the range and risk of breaking out beyond 69.10 to 69.35," said Sajal Gupta, head, forex and rates, Edelweiss Securities.
On technical charts, while the NSE Nifty50 remains in a downtrend, pullback rallies could be expected towards 11,456 points level, Mr Jasani said.
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