Domestic markets are likely to open on a flat note on Monday amid mixed global cues. Monthly F&O settlement on the NSE this Thursday will add to volatility in the market, said analysts. They expect large-caps to remain somewhat stable, while mid- and small-caps may experience heightened volatility.

Asian stocks are trading in a narrow range, while Chinese markets remain weak due to property stocks. U.S. stock futures are trading with marginal gains after a negative week for major benchmark averages as investors retreated in the face of rising long-term bond yields, following hawkish rhetoric from Federal Reserve policymakers.

  • Read: Index Outlook: Nifty 50, Sensex poised above crucial supports

Gift Nifty at 16,700 indicates a marginal positive for domestic markets.

Arvinder Singh Nanda, Senior Vice President of Master Capital Services Ltd, said: Benchmark Indices have been on the decline in the last few days.

JP Morgan plans to include Indian government bonds in its emerging market bond index, which will lead to significant inflows into the economy. JP Morgan’s index is $240 billion, and India’s weightage will be 10%, which will ease borrowing pressure. It is positive for the Banks, NBFCs, Public Sector Companies, he said.

However, India-Canada relationship is deteriorating as both countries have declared the expulsion of each other’s diplomats. It becomes important to watch the Investments of Canadian Pension Plan Investment Board (CIPB) of Rs 1.74 lakh crore in India. If this tension further escalates, it can create some pressure, he added.

FPI selling, which started earlier this month, continued in the week ended September 22. So far this month, in the fifteen trading days, FIIs were sellers in eleven days. As per NSDL data, in September through the 22nd, FPIs sold equity for Rs 10,164 crores. This figure includes bulk deals and investments through the primary market. In the cash market, FII selling was Rs 18,260 crores, so far this month.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said since valuations remain high even after the recent pullback and US bond yields are attractive (the US 10-year bond yield is around 4.49 percent), FIIs are likely to continue pressing sales. It would be irrational to expect FIIs to buy aggressively when the US 10-year bond yield is around 4.49 percent and the dollar index is above 105.

Analysts said the current correction is healthy given the sharp run-up in prices. They expect profit taking to continue.

Dr. Joseph Thomas, Head of Research at Emkay Wealth Management, commented on the markets.

“The equity markets traded lower from early this week till the last trading day, mostly swayed by developments around the US monetary policy and US markets. Though the Fed announced a hold on the Fed Funds Rate, the guidance on future rates left a strong probability of future rate hikes, at least one before the end of this year. That there may be further rate hikes rattled the markets, with the US markets losing altitude first and followed by Europe and Asian markets. There is also an element of profit booking that is at work, though this may be a passing one, as also some selling by FPIs. The factors that have influenced the markets may continue to exert some pressure in the coming week too.”

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