• Indian stock markets are set for a slight rise, with investors watching earnings of HDFC Bank, Kotak Mahindra Bank, and Tech Mahindra.
• HDFC Bank's aim to lower its loan-to-deposit ratio could significantly influence the market, while Kotak Mahindra Bank may face selling pressure after reporting a sequential margin contraction.
• Foreign institutional investors' selling trend, offloading domestic shares worth 54.86 billion rupees, is on track to hit a record high in October.
• The market's trajectory will be influenced by several factors, including the RBI's monetary policy and the performance of key stocks.

Indian stock markets are poised for a slight uptick as trading opens on Monday, with investors keenly watching the earnings of top private lenders HDFC Bank and Kotak Mahindra Bank, as well as IT firm Tech Mahindra.

The Gift Nifty was trading at 24,927.5 as of 07:14 a.m. IST, indicating that the benchmark Nifty 50 will open slightly above its Friday's close of 24,854.05.

The previous week saw the NSE Nifty 50 and S&P BSE Sensex drop about 0.4% and 0.2% respectively, marking the third consecutive week of losses. Analysts attribute this drop to sustained foreign outflows from India, as investors redirect funds to China due to its stimulus package and relatively cheaper valuations. 

HDFC Bank, the heaviest stock in the benchmark indexes, posted a standalone net profit above analysts' average forecast in the September quarter. The bank also announced its aim to lower its loan-to-deposit ratio to pre-merger levels in the next two to three years. This news is expected to significantly influence the market trajectory on Monday.

Earnings Reports and Market Reactions

However, Kotak Mahindra Bank could face some selling pressure after it reported a sequential margin contraction and asset quality deterioration in the second quarter. Tech Mahindra, which reported a quarterly revenue growth over the weekend, will also be in the spotlight.

Foreign institutional investors have been selling Indian equities for the past 15 sessions, offloading domestic shares worth 54.86 billion rupees ($652.7 million) on Friday alone, according to provisional data from the National Stock Exchange. This selling trend is on track to hit a record high in October, with the Nifty down 3.7% this month, marking its worst monthly performance since September 2022.

In other news, JM Financial announced that the Reserve Bank of India (RBI) has lifted restrictions on one of its units. Tata Steel signed a contract with Italy-based Tenova for an electric arc furnace at its Port Talbot plant in Wales. JSW Steel, in a joint venture with Japan's JFE Steel Corp, entered into a deal to buy thyssenkrupp Electrical Steel India for $482.1 million.

Regulatory Pressures and Market Developments

In recent developments, HDFC Bank has sold a housing loan portfolio of about Rs 60 billion ($717 million), seeking to lighten its credit load amid regulatory pressures on the industry. The portfolio was sold to about half a dozen state-controlled banks through private deals. The bank also unloaded another pool of car loans worth about Rs 90.6 billion, securitized in a fixed income product called pass-through certificates.

The bank's efforts to shrink its retail loan portfolio come amid heightened regulatory pressure to improve the sector's credit-deposit ratios. The portfolio sales would help HDFC Bank improve its ratio that has worsened in recent years as credit growth outpaced deposit in the nation and following its merger with mortgage lender Housing Development Finance Corp.

In other market news, the Sensex and Nifty closed around 1% up, with broader markets and sectoral indices rallying. However, HDFC Bank saw an 8.2% decline, marking its sharpest fall since March 30, 2020, following disappointing Q4 earnings and a wave of negative analyst opinions on private lenders, impacting sector sentiment.

The Reserve Bank of India (RBI) announced its fourth bi-monthly monetary policy, maintaining status quo on rates and stance. The policy repo rate remained unchanged at 6.50%. The RBI's decision to keep the rates unchanged is expected to have a significant impact on the banking sector and the broader economy.

In a recent development, an association of small enterprises has approached the RBI seeking relief on the high foreclosure and non-compliance charges levied by banks, including HDFC Bank, Axis Bank, and Kotak Mahindra Bank.

The Federation of Indian Micro and Small and Medium Enterprises (FISME) alleged that these banks have been using foreclosure and non-compliance charges to punish MSME borrowers looking for better terms and credit facilities elsewhere.