The domestic stock market dipped last week, led by financial shares, after the Reserve Bank of India (RBI) asked banks to maintain an incremental cash reserve ratio of 10% to tighten liquidity in the near term.

The central bank kept its key rate unchanged at 6.50% on Thursday but said that the headline inflation may remain elevated for the next few months due to supply chain disruptions on adverse weather conditions.

Stocks traders will focus mainly on the quarterly results to be announced this week and foreign fund inflows.

Government bond yields saw an uptick last week tracking its US peers and may remain range bound as the market participants will take further cues from inflation data to release post-market hour on Monday.

The rupee movement will be based on the crude oil price movements, and traders may avoid taking huge positions due to the truncated work week as markets will remain closed for Independence Day on Aug 14.

Indian Markets Last Week:

Stocks fell on Friday, extending losses for the third consecutive week, as financials and consumer sectors led the decline. Most sectoral indexes recorded losses, with the financials losing 0.87% after the RBI instructed banks to set aside a larger portion of incremental deposits under the cash reserve ratio to absorb excess liquidity.

Yields closed 5 basis points higher on Friday tracking US bond yields, but one basis point higher weekly. Investors will look for further cues as all key events, such as RBI policy and U.S. inflation data, have transpired.

Rupee fell against the dollar on Friday along with its Asian counterparts after U.S. inflation data were in line with expectations. On Thursday, both the Reserve Bank of India's monetary policy decision and the US inflation had little effect on the rupee.

Global Markets Last Week:

US stocks posted their second consecutive weekly loss on Friday, as stronger-than-anticipated U.S. producer price data drove Treasury yields higher and weighed on rate-sensitive growth stocks. It was the first occasion since 2023 that the Nasdaq had declined for two consecutive weeks.

US Treasury yields rose by 11 basis points last week for benchmark treasury on views that US Federal Reserve may not start the rate cut cycle soon enough as inflation is unlikely to dip as expected.

The US dollar posted a minor gain on Friday across a major basket of currencies as treasury rates across tenures increased on dwindling hopes that inflation would subside as soon as was anticipated.

Corporate Bonds

Secondary Market

Last week, Short-term yields were changed as mutual funds sold while foreign and public sector banks bought shorter-tenure NCDs. The RBI's monetary policy had little to no influence on corporate bonds because the central bank kept key rates unchanged in line with market expectations.

Outlook For This Week

Stock markets’ focus will remain on the earnings season for the first quarter from Aurobindo Pharma, ITC, among others. Overall, traders will avoid big bets as it is a holiday-shortened week.

The rupee's performance this week will be determined by fluctuations in crude oil prices and foreign equities flows. Government bond yields are likely to range bound. Market players would wait for domestic inflation data, which is expected after market hours on Monday.

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