Stock Market Outlook: Benchmark indices, Sensex and Nifty, concluded the week on a cautious note, declining by more than a per cent and marking the second week of consecutive decline. Even as bearish sentiment dominated the D-street, volatility levels took a declining path. Last week, Nifty Vix, the volatility gauge, dropped over 10% to settle at 16.08.
Trade tensions on the global front continue to outweigh pockets of optimism in the domestic sphere. While GDP growth for Q4FY25 stood at 7.4%, beating estimates at large, the annual figure dropped to a four-year low of 6.5% in FY25.
Meanwhile, even as optimism prevailed after the RBI announced a record ₹2.69 trillion dividend payout, the flip-flopping tariff play weighed down the overall market mood. "...as the week progressed, concerns surrounding rising US bond yields, trade tensions between the US and the European Union, and the ongoing legal battle over US tariffs weighed on market sentiment, limiting the scope for any meaningful recovery," said Ajit Mishra – SVP, research, Religare Broking Ltd.
Here are 3 factors that will impact the direction of markets next week-
1. FII Flow
In May, foreign investors continued their buying spree in Indian equities, mirroring April's trajectory. According to NSDL data, FIIs bought equities worth ₹18,082 crores through the exchanges. Several factors, including a declining dollar, stabilising inflation levels at home coupled with hopes of rate cuts by RBI, pushed the overall sentiment into the euphoric zone.
FIIs remained buyers in the auto, telecom and financial sectors in the first half of May, as per analysts. "India’s better-than-expected GDP growth in Q4 FY25 at 7.4% is an indicator that growth is rebounding and this can lead to a revival of corporate earnings in FY26. FIIs are likely to continue their investment in India. However, at higher levels they might sell since valuations are getting stretched," said VK Vijayakumar, chief investment strategist, Geojit Investments.
2. RBI Interest Rate Decision
While expectations for a rate cut remain high, D-street players will closely watch the RBI governor’s commentary amid mixed macroeconomic signals. The MPC meeting is scheduled for next week, June 4- June 6, 2025.
Meanwhile, other events and data releases will also impact the direction of markets in the upcoming week. This includes auto sale figures and any other major announcements around the ongoing trade negotiations. FII flow trend will also remain a major watch.
3. Technical Outlook
After spending the last two weeks in a consolidation phase, the Nifty is expected to make a directional move, as per analysts. "Holding above the 20-day exponential moving average (20-DEMA), currently around 24,600, will be essential to maintain a positive tone," said Mishra.
"A decisive breach of this level could trigger further profit-booking, dragging the index down toward the 24,200 mark. Conversely, a strong close above 25,200 could rekindle bullish momentum and open the path toward the 25,600+ zone," he added.
