Besides, trend in investment by overseas investors, global cues, movement of rupee against the dollar, oil prices and progress of monsoon will also hold key for the markets.
Market participants said the RBI is expected to maintain status-quo in its Tuesday's policy but any surprise may trigger volatility in the broader markets. The Sensex ended at 25,480.84 and the Nifty settled at 7,602.60 last Friday.
"The unstable geo-political situation (between Russia and the West), the US markets showing signs of topping out, the weakening rupee...are likely to lead to a correction in markets that is in any case overdue since valuations are looking a bit stretched. Most stocks have already rallied ahead of fundamentals," said Aman Chowdhury, CEO, Cians Analytics.
With no short-term triggers in sight, the markets are likely to pause before resuming the uptrend. The possibility of profit-taking and correction in the coming weeks seems very much on the cards, he added.
Stock-specific activity will be seen in a number of companies who would be announcing their first quarter results such as Power Grid Corporation of India, Hero MotoCorp, Mahindra & Mahindra, NHPC, Jindal Steel & Power and SBI.
"This week would be a crucial one to watch for, as the central bank will be coming out with monetary policy review. Traders would also be watching HSBC India Services PMI data, which is scheduled to be released on August 5. The prevailing earning season will keep the traders on their toes as well," said Jayant Manglik, President-retail distribution, Religare Securities.
Global cues will also be monitored by the investors.
"Markets would keenly watch developments in the Gaza crisis which has been worrying markets for over two weeks now," said Rakesh Goyal, Senior Vice President, Bonanza Portfolio.
Stock markets would on Monday also react to the US jobs data where the economy generated 2,09,000 new jobs in the month of July, making it sixth consecutive month when job gains have been above 2,00,000.
Meanwhile, for the past week, the Sensex and Nifty were down 646 points and 188 points respectively -- snapping successive gains in the previous two weeks.