The Indian stock markets are expected to open on a weak note as global equities have failed to sustain their recent gains and have turned extremely cautious. US stocks slumped overnight, as investors remained cautious about expectations that the US Federal Reserve will increase interest rates aggressively to cool the highest inflation in more than 40 years. Investors’ focus will be on Wednesday’s consumer price index data for June.

As US stocks wobbled, Asia-Pacific stocks, too, edged down, with equities across Japan, Korea and Taiwan down nearly only one per cent.

"Another bear-market rally has come and gone and we now head into earnings season and another week of major economic reports, fearful of what may lie ahead. The US inflation data midweek is a standout, as investors cross their fingers for signs of decelerating prices," said Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA.

SGX Nifty at 16,080

SGX Nifty at 16,080 indicates another soft opening for domestic markets. As Nifty futures closed flat at 16,203 on Monday, the domestic markets are expected open 0.7 per cent lower. However, analysts expect the Indian stock markets to remain relatively stable on expectations of a stable Q1 performance from India Inc, as the underlying economic activity, too, remains robust.

According to them, leading indicators such as demand for housing, autos (particularly passenger and commercial vehicles), certain discretionary items such as jewellery, . reflect a robust economic recovery in India.

According to Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd, equity markets have been resilient in the last couple of days on the back of healthy macro data (GST collection and Service PMI data) and strong pre-quarterly updates from banks, retailers and real estate companies.

Further, FIIs have reduced their selling intensity drastically in July, giving some relief to the market, he added.

RBI gets thumbs up

Besides, the latest move by the Reserve Bank of India to arrest the slide of the Indian rupee against the dollar is a welcome move, said analysts. One of the factors affecting Indian stocks is sustained selling by foreign portfolio investors.

The Reserve Bank of India on Monday enabled exports and imports to be denominated in rupees. This will internationalise the rupee which, in turn, will reduce foreign currency risks for traders and help navigate payment hurdles in trading with Russia. It will also reduce the demand for dollars.

"It's a good move. This would make the rupee more tradable globally in offshore centres. I think NDF volumes will go up further. It's a step towards making the rupee an international 24*5 traded currency," said Abhishek Goenka, Founder and CEO, IFA Global.

"Overseas buyers can open Vostro accounts with an Indian bank and they can make payments in INR to Indian exporters. The FX risk gets transferred to the overseas buyer as the rupee amount is fixed (since it is invoiced in INR)," he added.

A stable rupee will arrest FPIs’ selling, analysts said.