Movement of the rupee against the US dollar, foreign fund investment flows and global cues will dictate the stock markets trend this week, say experts.
Besides, investors will also track the ongoing monsoon session of Parliament as a heavy legislative business has been lined up by the government.
“With no major domestic triggers, market participants would continue to seek cues from the movement in USD-INR and international markets," said Nagji K Rita, chairman & MD, Inventure Growth and Securities.
Focus would also be on the minutes of the Federal Open Market Committee meeting that is due to be out on Wednesday.
The rupee on last Friday plunged to lifetime low of 62.03 before recovering to close at a record low of 61.65 against the dollar as local stocks crashed amid fears the RBI's curbs on forex outflows would lead to a return of capital controls.
According to Jayant Manglik, President Retail Distribution, Religare Securities: "Vulnerability in rupee has been haunting equity markets on regular intervals and we do not see ending it here. On charts, 5,450 is the next immediate support area and breakdown of the same will open floodgates to 5,300 levels in near future. Considering the same, one should avoid opposing positions and maintain bearish bias."
Experts said better-than-expected US economic data led to increasing concern that the Federal Reserve may start easing its stimulus programme as early as next month, which may prompt FIIs to pull out from the local markets.
Jobless claims for the week ending August 10 dropped to the lowest since 2007, helping dollar rise against most currencies.
In a move seen restricting outflow of foreign currency, the RBI had on August 14 announced stern measures, including curbs on Indian firms investing abroad and on outward remittances by resident Indians.
Seeking to calm rattled investors, the government and the RBI on Friday said there was no reverting to a capital control regime.
The benchmark S&P BSE Sensex had on Friday tanked by 769 points. During the last week the index had lost 1.84 per cent or 348.8 points to 18,598.18.
"Economic concerns and weakening currency are major concerns right now. In coming sessions, 5,480 shall be crucial deciding level in near term, and the index is likely to witness further selling below this level," said Rakesh Goyal, senior vice-president, Bonanza Portfolio.
