Investors will take their cues most from the fiscal deficit target that the government sets for the next financial year. Amid tax collections falling below target, analysts say that the markets have already priced in the fiscal deficit to breach the target for the current year set at 3.3 per cent of the GDP.
Anindya Banerjee of Kotak Securities said: "Fear of fiscal slippage in the Union Budget has caused an outflow nearly 1.6 billion from the debt market over the past 3 weeks."
At the same time, relentless intervention from the central bank has not allowed the rupee to appreciate as much as its peers in Asia. These are the major reasons why the rupee has become one of the weakest currencies in Asia, Banerjee added.
While the Economic survey report on Friday will provide further evidence on the extent of economic slowdown in India, expected measures to kickstart the economy in the Union Budget will provide direction to the equity markets, experts say.
Besides, investors will keep an eye during the upcoming week on the quarterly numbers of heavyweights like HDFC, Maruti Suzuki, the Bajaj twins, Bharti Airtel, SBI, ITC, Power Grid, HUL and Tech Mahindra.
Vinod Niar of Geojit Financial Service said that the market direction will depend on the actual budget announcements and the third quarters results, and that the broad market is still very solid in expectation of re-rating of valuations.
"The Q3 result had solid expectations but actual results are marginally below expectation for sectors like IT and banks, leading to cautiousness in the market. We feel that this cautious trend will be maintained in the near-term," Nair said.
The Indian stock markets will be open for normal trading on February 1, which is a Saturday, when the Union Budget is presented to the Parliament by Finance Minister Nirmala Sitharaman.
(Ravi Dutta Mishra can be contacted at ravidutta.m@.in)
( With inputs from IANS )