Stock market outlook: RBI Governor Raghuram Rajan's 'monetary policy meet key'

An investor sits in front of a poster of Hindu god Lord Balaji Venkateshwara as he looks at a display of stock prices outside the BSE. Reuters

Stock market outlook: The outcome of the Ben Bernanke-led US Federal Reserve meeting, which is widely expected to taper its USD 85 billion a month bond-buying programme, and the newcomerRaghuram Rajan-led the Reserve Bank of India's (RBI) monetary policy will influence the Indian stock markets in the week ahead, according to outlook presented by experts.

Morgan Stanley cuts Sensex target, earnings outlook

The US Federal Reserve will meet on September 17-18 and global markets, including India, are tracking whether the Federal Open Market Committee would reduce the monthly purchases of treasuries, brokers said.

India is among the markets that may be affected, at least in the short-term, as capital flows shift to the US as growth there recovers. Outflows would put more pressure on the slumping Indian rupee, they added. Portfolio flows are a key tool to finance India's current account deficit (CAD).

Over the past week, the BSE Sensex has added 463 points, or 2.4 per cent, the third week of gains.

"We believe that some tapering off is already priced in and to that extent, if the actual amount of taper matches expectations, it may not be taken negatively," said Dipen Shah, Head, Private Client Group Research, Kotak Securities.

The global financial markets were rocked when Fed Chairman Ben Bernanke said on May 22 that unwinding of the unconventional monetary easing was on the cards if the US economy recovers as per expectations.

The Sensex, which was hovering near the 20,000 mark in late May, hasn't been able to sustain gains above that level as market participants have been reluctant to add fresh positions until the Fed takes a call on tapering.

Newly-appointed RBI Governor Raghuram Rajan, a former IMF economist, postponed the central bank's mid-quarter policy review to September 20 from September 18 as he wanted to consider all major developments, including the Fed announcements and their effects on the markets.