US-Iran tensions, RBI policy and other factors likely to drive stock market next week

MUMBAI: Indian equity markets are likely to remain volatile in the coming week as investors track escalating geopolitical tensions in West Asia, the Reserve Bank of India's latest policy stance, persistent foreign fund outflows and rising US bond yields.

The benchmark indices ended the previous week in negative territory, and analysts believe these developments could continue to influence market direction when trading resumes on Monday.

The Indian stock market closed lower on Friday, extending cautious sentiment among investors amid global uncertainties. The Sensex fell 117 points to settle at 74,243, while the Nifty declined 50 points to close at 23,367.

A key factor that market participants will closely monitor is the worsening situation in West Asia. The US military said it struck Iranian coastal radar and surveillance sites after intercepting drones launched by Iran toward the strategically important Strait of Hormuz. According to reports, US officials believe the drones were targeting maritime traffic in the region. The subsequent strikes on surveillance facilities in Goruk and Qeshm Island have heightened concerns over potential disruptions to global energy supplies and shipping routes, factors that could influence crude oil prices and investor sentiment worldwide.

The Reserve Bank of India's monetary policy decision will also remain in focus. RBI Governor Sanjay Malhotra announced on Friday that the Monetary Policy Committee unanimously decided to keep the repo rate unchanged at 5.25 per cent. The central bank cited concerns over rising energy prices and supply-chain disruptions linked to the West Asia conflict while assessing the inflation outlook. The RBI also announced an increase in investment limits for Non-Resident Indians and Overseas Citizens of India in equity instruments, a move aimed at encouraging capital inflows.

Foreign investor activity continues to be another area of concern for the market.

Global interest rate expectations may also weigh on investor sentiment. Rising inflation concerns in the United States pushed Treasury yields higher last week, with the yield on the two-year Treasury note climbing to a 15-month high. Higher bond yields generally reduce the appeal of equities by offering investors more attractive returns from fixed-income investments, potentially leading to increased volatility in stock markets across the globe.