RBI's policy meeting, macroeconomic data announcements, and the trend in rupee and crude oil prices would set the tone for the stock markets in a holiday-shortened week ahead, say experts.
Bourses will remain closed Tuesday for Mahatma Gandhi Jayanti.
"Investors are yet to gain confidence to start bottom fishing due to lack of liquidity, margin funding and short selling in the market. Weak sentiment is likely to extend till the financial market stabilises and confidence reverts with accommodative valuation. RBI policy meet this week is the key event," said Vinod Nair, Head of Research, Geojit Financial Services.
RBI's interest rate decision will be announced Friday. At its previous monetary policy meeting in August, the Reserve Bank raised the benchmark interest rate by 25 basis points to 6.50% on inflationary concerns.
"RBI's interest rate decision will be crucially watched," said Mustafa Nadeem, CEO, Epic Research. PMI data for the manufacturing and services sectors will also influence trading sentiment, experts said.
Investors would continue to track the NBFC space which has been hit by liquidity concerns. Factors such as movement of rupee and crude oil prices would also play a key role, they added.
"Next month, hopefully will be rosier than the previous month as all the weak hands are out and the worst has already been priced in which is known to all.
"Things might only get better going ahead given the Q2 FY19 results will start pouring in. RBI's 4th bi-monthly meet could create a knee-jerk reaction if they decide to increase interest rates by 0.25%," said Jimeet Modi, Founder and CEO, SAMCO Securities and StockNote.
Over the last week, the Sensex lost 614.46 points, or 1.67%, to end at 36,227.14.
The Sensex has lost a whopping 2,417.93 points, or 6.26%, in September -- its worst monthly show since February 2016.
FPI outflow hits 4-month high of Rs 21,000 cr in Sept
Overseas investors pulled out a massive Rs 21,000 crore (USD 3 billion) from the capital markets in September, making it the steepest outflow in four months, on widening current account deficit amid global trade tensions. The latest withdrawal comes following a net infusion of close to Rs 5,200 crore in the capital markets (both equity and debt) last month and Rs 2,300 crore in July. Prior to that, overseas investors had pulled out over Rs 61,000 crore during April-June. According to the latest depository data, foreign portfolio investors (FPIs) withdrew a net sum of Rs 10,825 crore from equities in September and Rs 10,198 crore from the debt market, taking the total to Rs 21,023 crore (USD 3 billion).