Indian Stock Market Outlook for the Upcoming Week...

The Indian stock market is poised for a dynamic week ahead, influenced by recent monetary policy decisions, inflation trends, and global economic indicators. The Nifty closed at 23350.70 on last Friday. Today is it's expected to open gap up.

Monetary Policy and Interest Rates:

• Reserve Bank of India (RBI): The next Monetary Policy Committee (MPC) meeting is scheduled for April 3-5, 2024. In the previous meeting held from February 4-7, 2025, the RBI reduced the repo rate by 25 basis points to 6.25%, marking the first rate cut in nearly five years. It is believed that RBI is expected to cut repo by another 75 basis points in the coming months + there is likely to be a series of OMOs by the RBI. These moves aim to stimulate economic growth by making borrowing more affordable. I have predicted a target of 30,000 for Nifty by the end of this year. 

• Inflation Scenario: India's retail inflation fell to 3.6% in February 2025, the first time in six months it has dropped below 4%, largely due to declining vegetable prices. This easing inflation provides the RBI with room to consider further monetary policy easing in upcoming meetings.

Foreign and Domestic Investment Trends:

Recent data indicates that Foreign Institutional Investors (FIIs) have been net buyers, investing ₹7,470.36 crore, while Domestic Institutional Investors (DIIs) have been net sellers, offloading ₹3,202.26 crore. This trend suggests renewed foreign interest in Indian equities, potentially bolstering market sentiment.

Positive Fundamental View: The Indian economy is set to receive a boost as rising rural demand and the government's recent tax relief drive urban consumption, the Reserve Bank of India (RBI) highlighted in its monthly bulletin on Wednesday.

According to the RBI, urban demand is on the path to recovery, aided by easing inflation and a significant increase in disposable income following the substantial income tax relief announced in the Union Budget 2025-26.

Dollar Index and Its Impact on Indian Bourses: A Delicate Balancing Act:

The U.S. Dollar Index (DXY) is a critical gauge of the dollar’s strength against a basket of major global currencies, and its movements significantly impact emerging markets like India. As of March 23, 2025, the DXY stood at 103.99, reflecting a minor dip from its previous close of 104.09. While this change may seem marginal, its implications on Indian financial markets can be profound.

How the Dollar Index Affects Indian Markets:

🧨Foreign Institutional Investment (FII) Flows:

A strengthening dollar often leads to capital outflows from emerging markets, including India, as foreign investors seek safer, higher-yielding assets in the U.S. Conversely, a weakening dollar makes Indian equities more attractive, encouraging FII inflows. Given the current minor dip in the DXY, FII movement remains a key factor in determining market sentiment.

🧨Rupee Valuation and Inflationary Pressures:

A rising DXY typically results in a depreciating Indian rupee, making imports costlier and contributing to inflation. This particularly affects sectors reliant on imports, such as oil and gas. On the flip side, a weaker DXY supports the rupee, lowering import bills and easing inflationary pressures.

🧨Export Competitiveness:

A strong dollar enhances the competitiveness of Indian exports by making them more affordable in global markets. IT and pharmaceutical companies, which earn a substantial portion of their revenues from foreign markets, stand to benefit from a higher DXY.

Domestic Factors: Repo Rate Cut and Growth Projections:

While global currency movements impact the market, domestic policies and economic forecasts provide crucial context. The Monetary Policy Committee (MPC) has recently cut the repo rate, which is expected to stimulate domestic demand. The Reserve Bank of India (RBI) projects GDP growth at 6.7% for 2025-26, aligning with the government’s forecast of 6.3-6.8%.

On the inflation front, the RBI anticipates a decline to 4.2% in the next financial year, but warns of potential risks. These include global financial market volatility, fluctuating energy prices, and adverse weather events, which could push inflation higher.

Technical View of Nifty:

The candlestick chart for NIFTY (Daily) offers several key technical insights:

Trend Analysis & Moving Averages:

• Short-term (21-day MA): 22,603.17
• Medium-term (50-day MA): 22,968.48
• Long-term (100-day & 200-day MA): 23,521.91 & 24,682.92

→ NIFTY is below the 100-day and 200-day moving averages, indicating that the long-term trend is still bearish. 

However, the recent breakout above the 21-day moving average suggests a short-term recovery.

Momentum Indicators:

• RSI (14): 66.29 – Near overbought levels, signaling strong momentum but caution needed.
• Stochastic %K (14): 96.36, %D (3): 96.96 – Extremely overbought, indicating a possible pullback.
• William %R: -3.64 – Also in overbought territory, reinforcing the need for caution.

Trend Strength Indicators:

• ADX (14): 23.32 – Indicates a moderate trend strength.
• +DI (34.83) Vs -DI (18.21): Bullish crossover confirms positive momentum.

MACD & Divergence:

• MACD (26,12): -0.23 Vs EXP (9): -131.88 – Negative but showing signs of recovery.
• Divergence: 132.11, indicating bullish momentum.

Volume & Market Participation:

• PVI & PVO Indicators: Show neutral trends, implying volume hasn't significantly picked up yet.
• Chaikin Money Flow (21): > 0.00, indicating net buying pressure.

Bollinger Bands & Volatility:

• Bollinger Width (20,2): 1295.36 – High volatility, indicating strong price movements ahead.

Inferences:

• Short-term: Market is bullish, but overbought conditions indicate a possible pullback.
• Medium-term: Needs to break above 100-day and 200-day MAs to confirm a trend reversal.
• Support Levels: 23,000 (50-day MA), 22,600 (21-day MA) and 22,250 (recent lows).
• Resistance Levels: 23,500 (100-day MA).

Trading Strategy:

• Aggressive traders: Consider booking partial profits as Nifty is overbought.
• Positional traders: Buy on dips near 23000 - 22,600 with a stop-loss below 22,400.
• Breakout traders: Watch for a sustained move above 23,000 for further upside.

Final Takeaway:

While the minor dip in the Dollar Index suggests stability in the short term, Indian markets remain at the crossroads of global economic forces and domestic policy shifts. A weaker DXY may attract foreign investments, while the repo rate cut is expected to fuel domestic demand. However, the risks of inflation, energy price volatility, and external shocks remain. Investors should closely watch global currency trends, FII activity, and inflationary signals to navigate the evolving landscape of Indian bourses

As a corollary to the above, the investors should remain attentive to global economic developments and sector-specific news that could influence market dynamics.