Dalal Street Week Ahead | 10 key things that will keep traders busy next week

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The market turned stronger with the benchmark indices heading towards record highs after easing global worries with the fall in US bond yields and oil prices, and amid expectations of good quarterly earnings and dovish policy measures by RBI, in the week ended October 8.

The BSE Sensex closed above the 60,000 mark again, rising 1,293.48 points or 2.20 percent to 60,059.06, and the Nifty50 jumped 363.15 points or 2.07 percent to 17,895.20, while the broader markets continued to outshine with the BSE Midcap and Smallcap indices gaining 2.43 percent and 3.95 percent respectively during the week.

Reliance Industries along with IT and Auto stocks were prominent gainers in the passing week, followed by Banking & Financials, and Capital Goods stocks.

In the coming truncated week, experts largely expect the benchmark indices to remain rangebound unless there is substantial growth in the earnings of companies. Global cues (US non-farm payrolls, US bond yields, etc) and domestic economic data points will also be closely watched by the street for direction.

“The Q2 FY22 results season is set to begin next week with large-cap IT companies reporting their results first. But macro data on September CPI inflation, manufacturing, and industrial production could dictate the index price for the majority of the week as markets continue to consolidate in their tight range,” said Samco Securities.

The market will remain shut on coming Friday for Dussehra.

Here are 10 key things that will keep traders busy next week:

Earnings

In the coming week, all the focus of domestic investors will shift to September quarter earnings. More than 50 companies will declare their quarterly numbers including Infosys, Wipro, Mindtree, HCL Technologies, HDFC Bank, and Avenue Supermarts.

Amongst them the key focus will be on the IT sector that rallied 4.5 percent in the passing week, ahead of earnings by leaders, expectations of strong deal wins in the future, and after depreciation in the rupee against the US dollar. But experts expect some correction in the sector after the recent run-up and slightly lower than expected earnings by TCS last Friday.

“The Q2 earnings season has started with TCS’ results which is a minor miss on expectations and we could see some profit booking in the IT sector as IT stocks have rallied a lot in expectation of strong earnings however any correction will be a buying opportunity. We are going to see lots of volatility in the market, especially in the IT sector,” said Santosh Meena, Head of Research at Swastika Investmart.

Economic Data

The market will keep an eye on the domestic economic data points including September CPI inflation (which is expected to be below the 5 percent mark) and August industrial output data which will be released on Tuesday. WPI inflation for September will be released on Thursday.

“We expect CPI inflation to moderate to 4.62 percent YoY in September, on corrections to prices of perishables in the food basket. One-off shocks could see rising core inflation, although the overall inflation trajectory should continue to moderate in the near term,” said Rahul Bajoria, Chief India Economist at Barclays.

Foreign exchange reserves for the week ended October 8 and Balance of Trade data for September will be released on Friday.

Listing

Aditya Birla Capital and Sun Life AMC-promoted Aditya Birla Sun Life AMC will make its debut on the bourses on Monday. Experts largely expect the minor listing gains against the final issue price of Rs 712 per share.

The Rs 2,768-crore public issue was subscribed 5.25 times during September 29-October 1.

Coronavirus and Vaccination

The consistent control over Covid cases with less than 25,000 cases addition on daily basis in the passing week, and rising expectations of less third Covid wave impact amid increasing vaccination played a key role to support the market. Experts largely feel if there is no spike in Covid cases in the festival season, when the places across the country get crowded for celebration and shopping, then that would be positive news for the market.

Globally countries like the United States, Brazil, France, Iran, Spain, Italy, Mexico, Indonesia, Malaysia, etc showed a downtrend in terms of Covid cases, but the Covid cases graph of the United Kingdom, Russia, Turkey, Poland, etc still have a northward trend.

In India, more than 79.12 lakh Covid vaccine doses were administered across the country in the last 24 hours ending at 8 am on Saturday. With that nearly 94 crore people have been vaccinated, of which 28 percent public completed their vaccination with a second Covid dose.

US Bond Yields, Dollar index, and Crude Oil Prices

Globally all eyes will be on the trend of US bond yields that traded above the 1.6 mark now and the US dollar index that climbed over 94 levels, indicating that the expectations increasing for early Fed tapering. Experts largely feel the tapering will also depend upon the US economic data including non-farm payrolls, so if the data comes below expectations then the tapering could get delayed a bit.

“Fed has tilted towards monetary tightening and most Fed officials have maintained that criteria to start monetary tightening have been largely met. However, any decision may be dependent on the health of US economy. The key test is the US non-farm payrolls report for the month of September. August report disappointed as jobs growth slowed sharply however September is expected to show improvement. An upbeat report may show strength in US labour market and may strengthen a case for Fed to start bond tapering soon,” said Ravindra Rao of Kotak Securities.

Oil price is another key factor that will be closely tracked by countries that import the oil more including India. Brent crude futures, the international benchmark for oil prices, closed above $80 a barrel at $82.4, while US crude oil prices hit $80, the highest level since 2014, on Friday.

“When it comes to the rise in oil prices, India must deal with it strategically because an increase in oil prices will worsen the country’s financial deficit because the majority of the country’s economy is reliant on it,” said Gaurav Garg of CapitalVia Global Research.

Prices of other commodities including natural gas, coal and steel will also be watched as tighter supply lifted prices quite sharply in the recent past, though the concerns eased to some extent amid reports of likely improving supply.

Indian Rupee and FII Flow

The Indian rupee closed at 75.13 a dollar on Friday, the highest closing level since April 21, 2021 after oil prices crossed $83 a barrel and US dollar index surpassed 94 levels last week. The currency depreciated by 100 paisa during the passing week, despite rally in equity markets.

“Even Accommodative stance and holding key interest rates by RBI did not support the rupee fall as markets anticipate a further rise in energy prices. Going ahead, the rupee can be seen in range of 74.85-75.25 a dollar,” said Jateen Trivedi, Senior Research Analyst at LKP Securities.

Foreign institutional investors continued to remain net sellers, offloading Rs 3,686 crore worth of shares during the week, but domestic institutional investors came to the support for the market as they bought Rs 3,458 crore worth of shares.

Global Data Points

Here are key global data points to watch out for in the coming week:

Technical View

The Nifty50 has formed small bullish candle which resembles Doji kind of pattern formation on the daily charts as the closing was near its opening levels, while there was bullish candle formation on the weekly scale. The index gained 0.6 percent on Friday and rallied 2 percent during the week.

According to technical experts, the index needs to decisively surpass the 18,000 hurdle for strong uptrend in coming sessions, till then the rangebound session could continue.

“Technically, Nifty is trading near-critical resistance zone of 17,950-18,000 where it could again witness selling pressure but if it manages to trade above this zone then we could see a rally towards 18,200-18,300 levels,” said Santosh Meena of Swastika Investmart.

“On the downside, 20-DMA of 17,650 is immediate and important support; below this, 17,450 is a critical support level because below 17,450 we could see any meaningful correction,” he added.

F&O Cues

Option data also indicated that in the immediate period, the 18,000 is expected to remain a hurdle for the Nifty50, while 17,600 could be support levels.

On option data, maximum Call open interest was seen at 18000 followed by 18500 & 18200 strikes while maximum Put open interest was seen at 17800 followed by 17000 & 17700 strikes.

Call writing was seen 18500 then 18000 & 18300 strikes with Call unwinding at 17800 & 17700 strikes while Put writing was seen at 17900 then 17000 & 17700 strikes.

“The 18000 strike Call option has the highest open interest for October 14 expiry while the 17800 strike Put has the highest open interest, therefore 18000 is an important and psychological hurdle. Put call ratio stands at 1.3 level whereas FIIs’ long exposure in index future stands at 59 percent that is neutral to positive,” said Santosh Meena.

India VIX, which measures the expected volatility in the market, fell to 15.65 from 17.21 levels on the weekly basis, which supported the market. “Now VIX needs to cool down below 15-14 zones to continue the smooth ride of the market,” said Chandan Taparia of Motilal Oswal.

Corporate Action

Here are key corporate actions taking place next week:

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