The US Federal Reserve's interest rate decision is the biggest event that would drive sentiments in the domestic stock market this week, besides a host of macroeconomic data from the global front and trading activity of foreign investors, analysts said.
The Indian equity market had an exceptional last week, with both the Nifty and Sensex hitting their all-time high levels on Thursday.
The BSE benchmark breached the 83,000 level for the first time on Thursday.
"One of the most anticipated events of the year is set to unfold this week with the US Federal Open Market Committee (FOMC) meeting scheduled for September 18th. It is almost certain that this will mark the beginning of an interest rate cut cycle in the US.
"The general consensus is for a 25 basis points (bps) rate cut, though some market participants are speculating a more aggressive 50 bps cut.
"Such a move would be a significant positive trigger for global markets, particularly for emerging markets like India, as it would likely result in a weaker dollar and lower US yields, spurring foreign inflows into Indian equities," said Santosh Meena, Head of Research, Swastika Investmart Ltd.
Additionally, Japan's inflation data is due on Friday, followed by the Bank of Japan's (BoJ) monetary policy announcement, he said.
"In addition to this, other crucial factors that will influence market sentiment include FII (Foreign Institutional Investors) flows, the geopolitical landscape, and crude oil prices," Meena added.
"The outlook for the market will be guided by the major domestic and global economic data such as India's WPI inflation, US industrial production, US Fed interest rate decision, US FOMC economic projections and US initial jobless claims," Palka Arora Chopra, director, Master Capital Services Ltd, said.
Last week, the BSE benchmark jumped 1,707.01 points or 2.10 per cent and the Nifty climbed 504.35 points or 2.02 per cent.
"Looking ahead, this week will be critical with the US Fed meeting scheduled, and its outcome expected on September 18.
"Domestically, participants will be closely monitoring WPI inflation data and foreign fund flows," said Ajit Mishra – SVP, Research, Religare Broking Ltd.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, "A significant trend in the market for the week ended 13th September is that FIIs were buyers of equity in the cash market on all days of the week."
There are two reasons why FIIs have changed their strategy from selling to buying, he noted.
"One, there is a consensus now that the Fed will start cutting rates from this month onwards pushing the US yields down.
"This will facilitate fund flows from the US to emerging markets.
"Two, the Indian market is extremely resilient with strong momentum and missing out on the Indian market would be a bad strategy for FIIs," Vijayakumar added.
