A rally led by strong liquidity inflows helped the Nifty finally scale the 10,000 mark and the Bank Nifty to touch 25,000. Domestic institutional investors have poured $7 billion into Indian equities this year while foreign institutional investors have pumped in $8.6 billion.

A broker reacts while trading at his computer terminal at a stock brokerage firm in Mumbai, August 24, 2015. REUTERS/Danish Siddiqui/Files

Crude oil prices reached a two-month high and have posted their best weekly gains this year on efforts to curb production by the OPEC. Falling U.S. crude and fuel stockpiles and Saudi Arabia’s promise to cut exports in August aided sentiment in the futures market.

Corporate earnings remained a mixed bag. Those declaring a decent set of numbers were Yes Bank, Hero MotoCorp, HDFC and HDFC Bank. However, Maruti, L&T, Biocon, Dr. Reddy’s, ITC and ONGC missed estimates while ICICI Bank managed to meet expectations.

On the global front, the U.S. Fed maintained its dovish stance and kept rates unchanged, and said it would start reducing its bond holdings “relatively soon”. The impact on global markets was minimal as the outlook was already dovish.

Back home, there was heightened political activity as Bihar Chief Minister Nitish Kumar formed a new government in the state with the BJP after ending his alliance with Lalu Prasad Yadav’s RJD and the Congress. This means that Modi’s party now rules - either alone or in coalition - in 17 of India’s 29 states, representing close to two thirds of India’s 1.3 billion people.

On the macro front, the IMF has kept India’s growth forecast for next year unchanged at 7.7 percent in its latest World Economic Outlook report. It projected global growth at 3.5 percent this year.

Meanwhile, the Indian Meteorological Department expects a near normal monsoon this year. Tamil Nadu, Karnataka and parts of the northeast have reported deficient rains while parts of Gujarat, Rajasthan and Assam are experiencing flooding.

The RBI will hold its bi-monthly policy review on Wednesday. With inflation below the central bank’s comfort zone, most market players feel there is room to reduce rates. I believe the RBI may shock markets by holding rates steady. The fall in inflation is not due to prudent fiscal management but because of a slowdown in the economy. Any rate cut has to act as a catalyst for spurring economic growth and not just to aid market sentiment.

Geopolitical worries are expected to take centre-stage once again after North Korea fired a missile that the country’s leader Kim Jong Un claimed could strike the whole U.S. mainland. Meanwhile, Pakistan’s prime minister resigned after the Supreme Court disqualified him from public office over undeclared assets. He was investigated over allegations stemming from the “Panama Papers” leaks of international offshore companies. This development could make it more difficult to find a solution to the present tensions between India and Pakistan. There is also no resolution so far on the India-China standoff near the Sikkim border as a meeting between officials of the two countries ended without any deal.

The corporate earnings season has reached the midway point, and some of the prominent companies set to declare their numbers in the upcoming week are Reliance Power, Siemens, JSW Steel, Marico, Power Grid, Tech Mahindra, Godrej Properties, Lupin, PNB, Reliance Infra, Colgate, IOC, Titan, M&M and Dabur.

While liquidity continues to flow unabated, I would advise investors to remain light on equity investments. When valuations are stretched and geopolitical tensions are rising, it is better not to risk one’s capital.