A slew of economic readings will keep investors on their toes in the truncated trading week ahead.
The government will announce the June quarter current account and fiscal deficit data on Monday, expected to set the tone for stocks in the days ahead. Automobile shares are likely to be in focus, with companies set to announce their September sales figures early in the week. Indian financial markets will be closed on Wednesday, on account of Gandhi Jayanti.
Market participants and economists are expecting the current account deficit (CAD) for April-June around five per cent. Analysts expect the markets to rally if the CAD is well below it expectations. "The probability of disappointment in the CAD numbers is low. The future direction of this data also looks positive," said Tirthankar Patnaik, director and chief economist at Religare Capital Markets.
Investors will also watch China's September manufacturing index data, due on Monday, to gauge the extent of economic activity in the world's second largest economy.
"Preliminary numbers for China and Europe seem to be encouraging and have touched a six-month high. If the data released confirms the trend, it would push Asian markets higher and the same trend is likely to be replicated in India markets," said Sachidand Shukla, economist with Axis Capital.
The Shanghai Stock Exchange will be closed from Tuesday till October 7, on account of National Day celebrations. The Hong Kong stock exchange will remain closed on Tuesday and Wednesday.
Some analysts said the extent of foreign institutional inflows would play a bigger role in determining the market's direction than the economic data.
"Markets will largely take cues from the foreign ETF (exchnage traded funds) money that has been flowing into emerging markets, post the FOMC (US Federal Reserve's open market committee) decision to continue with QE3 (its quantitative expansion)," said Vivek Mahajan, head of research at Aditya Birla Money.
Foreign institutions had pumped about Rs 5,700 crore in Indian stocks till Thursday, after the US Fed's announcement on September 18 to keep its multi-billion dollar monetary stimulus package intact. So far in September, they have net-bought shares worth Rs 13,228 crore.
Fund managers and research heads said investors should continue betting on information technology and pharmaceutical sector companies. Though valuations are expensive in these sectors, analysts said investors would do well to bet on these.
The markets will also take a cue from the automobile sector sales numbers, to be released on Tuesday. These have been slowing, due to a drop in consumer demand. However, a pick-up in rural consumption on the back of a good monsoon is expected to benefit the sector. Analysts said the stocks to watch in the week ahead would be Maruti, Hero MotoCorp and Bajaj Auto.
Technical analysts are watching whether the National Stock Exchange's Nifty slips below the key resistance level of 5,780. It closed on Friday at 5,833.
"The Nifty could find strong support levels at 5,780-levels and face resistance at 6,000-6,100. However, if it slips below 5,780, a correction till 5,680 cannot be ruled out," said.