Dalal Street Week Ahead | 10 key factors that will keep the traders busy

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The market had a historic week that ended on September 3 as consistent foreign money inflow (after dovish US Fed stance), GDP data and auto sales drove the BSE Sensex beyond 58,000 and the Nifty50 above 17,300 mark for the first time on Friday.

The rally was across sectors with auto, bank, energy, infra, metal, pharma, and oil & gas indices rising 3-6 percent each. Realty was the biggest gainer with nearly 11 percent gains.

© Nishant Kumar Dalal Street Week Ahead | 10 key factors that will keep the traders busy

The BSE Sensex climbed 2,005.23 points, or 3.57 percent, to close at 58,129.95, while the Nifty50 jumped 618.40 points, or 3.70 percent, to 17,323.60, while the broader market outweighed frontliners with the Nifty Midcap 100 index rising nearly 5 percent and Smallcap 100 index up 4 percent during the week.

In the truncated week ahead, the market, especially after a stellar rally last week, could see some consolidation initially but overall may continue its up move, with focus on global cues, IIP data and Covid-related updates, experts feel.

“Global markets have played a supportive role in the recent surge and their performance in the coming week would be equally important to maintain the prevailing bias,” said Ajit Mishra, VP Research at Religare Broking.

He further said, “We are eyeing 17,500 in Nifty however it may see some pause or consolidation first. The recent trend of rotational buying across sectors is likely to continue in the coming week too.”

Though the broader indices have also witnessed a decent surge of late, Ajit Mishra recommended to remain cautious as any profit taking in the market may again derail the momentum.

The market will remain shut on September 10 for Ganesh Chaturthi.

Here are 10 key factors that will keep traders busy in the coming week:

IIP Data

The industrial output for the month of July is the key data to watch out for in the coming week, which is scheduled on Friday. Experts expect the growth to be in double digits on a low base in year-ago period and largely around similar lines of June data, with the strong manufacturing PMI data, easing restrictions by states in India and increased economic activity.

“The output of the eight core sectors grew by 9.4 percent in July 2021, against a contraction of 7.6 percent in July 2020, and 9.3 percent growth in June 2021. The core sector output accounts for around 40 percent weight in the IIP basket. On account of the strong core sector performance in July 2021, we expect the growth in index of industrial production to be in the range of 12-14 percent,” said CARE Ratings.

Apart from factory output data, deposit & bank loan growth for the fortnight ended August 27, and foreign exchange reserves for week ended September 3 will also be released on Friday.

Coronavirus and Vaccination

Besides economic data, Covid-related updates and the pace of vaccination will also be keenly watched going ahead. India consistently added more than 40,000 cases in last few days along with rising in active cases but still remained under control given the increased pace of vaccination across the country and better than major countries. Globally the graph of daily addition of Covid cases in United States, United Kingdom, Germany, Canada, Belgium, Israel, Poland, Philippines, Ukraine, Austria, Serbia, and many more remains in upward direction.

Kerala, Maharashtra, Karnataka, Tamil Nadu and Andhra Pradesh continued to be major contributor to the list of daily Covid cases.

In the last 24 hours ended at 8 am on September 4, India administered more than 58.85 lakh Covid vaccine doses, taking the total vaccination administered to over 67.72 crore, so far, in the country. The count of people vaccinated with first dose stood at over 51.98 crore and more than 15.73 crore people completed their second Covid vaccine dose.

FII Flow

After couple of weeks of selling, foreign institutional investors returned to India with substantial amount of inflow on the back of very dovish commentary of US Fed Chair Jerome Powell in the speech at Jackson Hole. Now all eyes are on the Fed meeting scheduled later in the September and till then the street will closely watch whether the inflow will continue at same pace going ahead.

FIIs have net bought Rs 6,867.73 crore worth of shares in the week gone by, whereas domestic institutional investors seem to have preferred to book profits as they net sold Rs 1,421.12 crore worth of shares in the same period.

Indian Rupee

The Indian rupee appreciated to 73 against US dollar, from 73.47 on week-on-week basis amid significant FII inflow, rising equity markets and fall in US dollar index that measures the value of world’s leading six currencies against US dollar.

Experts feel the currency may appreciate further given the rally in equity markets and expected weakness in dollar index, while the upside may be capped around 73.5 per US dollar.

“Next week is going to be data light and hence the downward bias will continue in USDINR, barring any unexpected sell-off in stocks. However, with USDINR back near 73.00, the tussle between market and RBI is fully underway. Market wants to know where the RBI will draw the line and intervene aggressively,” said Anindya Banerjee, DVP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities.

Overall, ICICI Direct expects the rupee to appreciate further towards 72.70 level in the coming week mainly on weakness in dollar and as a rally in the domestic equities continues. “Further, persistent FII inflows, improved macroeconomic data are expected to support rupee. Nikkei Services PMI data showed activity in services sector expanded in August after contracting for three consecutive months.”

Technical View

The Nifty50 formed bullish candle on the daily as well as weekly charts as it gained half a percent on Friday and surged 3.7 percent during the week, indicating the continuity in overall positive momentum going ahead, but experts largely feel initially some amount of profit booking and consolidation can’t be ruled out in the coming week considering the sharp run up last week with the index registering a fresh record high at 17,340 levels.

“Nifty on the weekly chart has witnessed a sharp upside breakout of narrow range movement of the last three weeks. This is positive indication and one may expect intraday volatility at the higher levels in coming sessions,” said Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

“There is a possibility of further upside in Nifty for the next week towards 17,500-17,600 levels. The crucial supports like daily 10 period and 20 period EMA is placed around 17,260 and 17,200 levels respectively,” he added.

Nifty Bank

The movement in the Nifty Bank is crucial for the Nifty50’s northward journey going ahead as in the passing week, it was one of the key supportive sectors that helped Nifty50 surpass 17,300 levels. Experts feel Nifty Bank needs to strongly hold on to 36,000 mark going ahead for further upside which ultimately is expected to help the benchmark to continue its run up.

The Nifty Bank formed bearish candle which resembles High Wave candle on the daily charts and saw bullish candle formation on the weekly scale as it lost 0.2 percent on Friday and gained 3.18 percent during the week respectively to close at 36,761.15.

“Overall price setup suggests a tug of war but major trend remains intact to bullish. Now it has to hold above 36,800 to witness an upmove towards 37,250 and 37,500 levels while on the downside supports are seen at 36,500 then 36,250 levels,” said Chandan Taparia of Motilal Oswal.

F&O Cues

The option data indicated that largely the Nifty50 could trade in the range of 17,000 to 17,500 in the coming week. And the volatility on week-on-week basis increased but fell sharply from higher levels seen during the week could be supportive for the market, experts feel.

On option front, maximum Put open interest was seen at 17000 followed by 17200 & 17100 strikes while maximum Call open interest was seen at 18000 followed by 17500 & 17300 strikes. Call writing was seen at 18000 then 17300 & 17900 strikes with unwinding at 17200 and 17100 strikes while Put writing was seen at 17300 then 17200 & 17000 strikes.

India VIX moved up from 13.40 to 14.54 levels. “Stability in the volatility and declines from higher zone suggests that bulls are holding the tight command on the market,” said Chandan Taparia of Motilal Oswal.

“The volatility index has risen sharply last week and even moved above 15 levels as a sharp up move has triggered Call option writers to close their positions and move to much higher strikes. We believe in the current scenario, instead of looking at Call bases, one should focus on Put bases and remain positive till the Put bases are not breached,” said ICICI Direct.

Currently, ATM 17200 and 17000 strikes are holding significant open interest and one should trade positive above these levels,” the brokerage added.

Oil Prices

Overall crude oil prices continued to trade in a range of $70-74 a barrel for than a week now, especially after showing smart recovery from $65 a barrel to over $70 a barrel. In the third week of August, oil prices had fallen sharply to around $65 amid demand worries due to rising Covid cases in developed countries including US, UK and Canada.

Brent crude November futures closed at $72.61 a barrel on Friday, declining moderately from $72.70 a barrel seen in previous Friday. Experts feel the rising Covid cases globally could limit the upside in oil prices, which is ultimately a supportive factor for India that is second oil importer in the world.

“Concerns about the spread of Covid-19 over the world could cloud the future for fuel consumption and cap the rising momentum,” said Kshitij Purohit of CapitalVia.

Technically, Santosh Meena of Swastika Investmart feels crude oil prices will have some impact on the equity market where $74 is an important hurdle for Brent crude. “Above this, we can expect a move towards $76.”

Corporate Action

Here are key corporate actions taking place in the coming week:

Global Cues

Apart from European Central Bank’s interest rate decision and US jobs data, here are other key global cues to watch out next week:

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