Dalal Street sentiment: This week, it’s all about Janet Yellen’s rate call

MUMBAI: The outcome of the US Federal Reserve’s rate-setting meeting on Thursday will set the tone for the stock market in the days ahead. Sentiment is nervous ahead of the Fed meeting as investors weigh whether the US central bank will raise interest rates for the first time in almost a decade. Investors will also watch wholesale and retail inflation readings for August on Monday that could influence the Reserve Bank of India’s decision on interest rates later this month.

Selling by foreign institutional investors (FIIs) have not abated despite the market showing signs of bottoming out last week, at least for the moment; while local traders have created various derivative bets on expectations of heightened volatility ahead of the event. Market participants said if the Fed decides to raise rates, outflows from foreign investors could continue for a bit longer.

But, in case, the US central bank does not tighten monetary policy, will FII selling recede? That is what Dalal Street will watch in the truncated trading week ahead. The stock market will be shut on Thursday because of Ganesh Chaturthi.

"Stock markets may remain tentative and trade within a range. Volatility will continue to remain at elevated levels ahead of US Fed meeting, while some correction in definitely expected," said UR Bhat, director at Dalton Capital India.

"Nifty is currently facing resistance at 7,887 levels," said Amar Ambani, head of research at IIFL. "The index recovery which took place from the low of 7,540 can be much described as technical pullback rather than fundamental." Amit Gupta, head of derivatives at ICICI Direct, said the major support for the index is at 7650 levels.

"An interest rate hike of 25 basis points by the US central bank has already been discounted by the markets; we expect a relief rally on Friday," said Ajay Bodke, head-investment strategist and advisory, Prabhudas Lilladher.