The direction of US bonds may continue to drive sentiment in the stock market.

With the Nifty near

the crucial support of 17,400, sentiment among traders is jittery. Analysts said Reserve Bank of India
signalling the start of normalisation of its liquidity measures will also keep traders nervous.

The two key share indexes recorded their worst weekly performance since April last week. They
were both down nearly 2% from their closing levels on Thursday.

The weakness was triggered by the rise in US bond yields as growing inflationary concerns have
raised expectations that the US Federal Reserve could resort to faster withdrawals of its asset
purchase programme.

India's stock market could underperform the global markets from here on, says ICICI Securities chief
investment officer Piyush Garg. "At higher levels the risk is rising in the market and the correction
will also be larger at higher levels," he said.

The Indian equity market underperformed most regional markets last week except Korea, Taiwan
and Japan. In September, stock indices gained nearly 3% and outperformed all regional markets
except Japan. During the September quarter, Indian markets outpaced most global markets with a
gain of 12%.

The Nifty's 12-month forward price-to-earnings ratio (P/E) is 42%, above its 16-year average. "US
Markets will also look out for signals from the Reserve Bank of India (RBI) whether it plans to
normalise its monetary policy. Analysts are still hopeful that the Nifty will touch 18,000 in October
after hitting 17,400 on Wednesday. Interest rate movement is something which the market will
watch carefully," says expert.

The path of US bonds may continue to influence stock market sentiment. Traders are nervous as the
Nifty approaches the critical support level of 17,400. The Reserve Bank of India signalling the
beginning of normalisation of its liquidity policies, according to analysts, will also make markets
apprehensive.

Last week, the two major stock indices had their lowest weekly performance since April. They were
both down roughly 2% from their Thursday closing levels.

The drop was caused by a spike in US bond yields, which has fueled speculation that the US Federal
Reserve may begin to remove its asset-purchase programme sooner rather than later due to rising
inflationary fears.

According to Piyush Garg, chief investment officer at ICICI Securities, India's stock market may lag
global markets in the future. "The risk in the market is rising at greater levels, and the correction will
be larger at higher levels," he stated.

With the exception of Korea, Taiwan, and Japan, the Indian equities market lagged other regional
markets last week. Stock indices rose roughly 3% in September, outperforming all regional markets
except Japan. With a gain of 12 percent in the September quarter, Indian stocks outperformed other
global markets.

The 12-month forward price-to-earnings ratio (P/E) of the Nifty is 42 percent, which is higher than
the 16-year average.
Markets in the United States will also be watching for signs from the Reserve Bank of India (RBI) that
it intends to normalise its monetary policy. After topping 17,400 on Wednesday, analysts believe the
Nifty will reach 18,000 in October. The market will be keeping a close eye on interest rate changes.