Dalal Street Week Ahead | US economy, FIIs, F&O expiry and all that will mark the market next week
Bears showed their might in the stock market in the week ended September 22, as the benchmark indices lost more than 2.5 percent last week, after a three-week rally. This decline in the market was driven primarily by the underperformance of most sectors, barring PSU banks.
The hawkish tone of the Federal Reserve hinting higher rates next year, aggressive sell-off by foreign institutions, correction in index heavyweights like HDFC Bank, and weak global cues dented the market sentiment, though JPMorgan’s decision to include Indian government bonds in its bond index turned out to be good news on the last day of the week, which was one of the reasons for a rise in PSU banks.
After severe correction, the market is likely to consolidate further with negative bias in the coming week with focus mostly on global cues (including US GDP numbers, bond yields) due to absence of major domestic data points and the scheduled monthly expiry of September derivative contracts may also cause volatility, experts said.
The BSE Sensex plunged 1,830 points or 2.70 percent to 66,009, while the Nifty50 tanked 518 points or 2.57 percent, the biggest weekly loss since February (in percentage terms), to 19,674.
The correction was also seen in broader markets, as the Nifty Midcap 100 and Smallcap 100 indices fell 1.7 percent and 2.5 percent.
“We expect the market to remain under pressure in the near term given the global concerns,” Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, said. He suggests investors to have higher allocation towards defensive and largecaps.
Overall, Vinod Nair, head of research at Geojit Financial Services also said the risk-averse sentiment prevailed, driven by the ongoing ascent of US bond yields and concerns regarding the possibility of higher rates persisting for an extended period.
As the market enters a new week, let’s check out the 10 key factors that are expected to the give the direction to trading.
US economic growth
Globally, investors will keep an eye on the final economic growth numbers for the second quarter of this calendar year scheduled to be released on September 28, and speech by the Fed Chair Jerome Powell on September 29.
The US economy registered growth at an annual rate of 2.1 percent for Q2CY23 as per the second estimates, compared to advance estimates of 2.4 percent growth and the expansion of 2 percent for the first quarter of 2023. Hence, whether the economy maintains the annualised 2 percent growth rate or not will be the key to watch out for.
The participants will also listen to the speech by the Fed chair carefully to get a strong signal with respect to the peak of the interest rate hike cycle. In the commentary last week, Powell hinted for higher interest rates through the 2024.
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Global economic data points
Investors will also watch out for the GDP numbers of the UK for the June quarter 2023, and the weekly jobless claims and pending home sales for August by the US next week.
Here are key global economic data points to watch out for the coming week:
Funds flow from foreign institutional investors (FII) will be another factor under close watch, after the severe selling last week following the Fed’s hawkish tone and the elevated US 10-year treasury yields and the US dollar index. The high valuation concerns even after the 2.7 percent market correction from record high also triggered FII selling. Experts expect the FIIs to remain sellers given the strength in US bond yields and US dollar index.
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FIIs have net sold Rs 8,681 crore worth of shares in the cash segment for week ended September 22, taking the total monthly outflow to Rs 18,261 crore, while domestic institutional investors (DIIs) failed to offset the entire FII outflow as they bought Rs 1,940 crore worth shares in the week passing by and their net buying for the current month was Rs 12,169 crore.
The US 10-year treasury yields jumped 4.49 percent during the week, the highest level since 2007, before settling at 4.44 percent, while the US dollar index, which measures the value of US dollar against the basket of world’s leading six currencies, jumped to 105.58 levels, the highest closing since November 2022, continuing uptrend for tenth consecutive week.
Crude oil prices
Oil price retreated a bit during the week gone by and it was the first weekly decline in the previous four straight weeks, primarily due to the fear of one more Fed funds rate hike in the US, but still supported by possible further supply tightening after Russia’s temporary ban on gasoline and diesel exports. Experts expect the oil prices to remain rangebound with a positive bias in coming weeks.
International oil benchmark Brent crude futures settled at $93.3 a barrel, falling 0.7 percent partly on profit taking during the week, after more than 11 percent rally in last three weeks.
Domestic economic data points
On the domestic front, the fiscal deficit, and infrastructure output numbers for August, as well as foreign exchange reserves for week ended September 22 will be released on September 29.
Further, current account and external debt data for the quarter ended June 2023 will also be released on the same date.
Technical view
The Nifty50 has decisively broken its crucial support of around 19,850-19,900 levels and closed at 19,674 for the last week. The next critical support is likely to be 19,500-19,400 area, followed by 19,200 (which coincides with 20-week EMA – exponential moving average), but in case of recovery, the index may face resistance at 19,800-20,000 levels in coming week, experts said, adding considering the bearish sentiment, any rally may get sold into in near term.
“The Nifty50 has also slipped below the short term moving average (20 EMA – placed at 19,770) and holding below the same. It may result in possible consolidation in the index with the bias on the negative side,” Ajit Mishra, SVP – technical research at Religare Broking said.
He expects the Nifty to hold the 19,200-19,550 zone while the 19,900-20,100 zone would attract selling.
F&O cues
The weekly options data suggested that 19,500 is expected to be critical support in near term, followed by 19,000 given the bearish sentiment, whereas the near term resistance may be at 19,800-20,000 levels.
The maximum Call open interest was visible at 19,800 strike, followed by 20,000 & 19,900 strike, with meaningful Call writing at 19,800 strike, then 19,700 strike, while there was maximum Put open interest at 19,000 strike, followed by 19,700 & 19,500 strikes, with Put writing at 19,000 strike, then 19,600 & 19,700 strikes.
Volatility index
Volatility remained on the lower side, but overall for last several months, it has been rangebound. India VIX, which measures the expected volatility for next thirty days in the Nifty50, dropped 2.22 percent during the week to 10.66 levels, and remained within previous week’s range.
Momentum in the primary market is expected to continue with 16 maiden public issues worth nearly Rs 4,000 crore lined up to open for subscription next week including JSW Infrastructure’s Rs 2,800-crore offer and Updater Services’ Rs 640-crore IPO which will be opened during September 25-27 in the mainboard segment. Valiant Laboratories will open its Rs 152-crore IPO on September 27, while Vaibhav Jewellers will close its Rs 270-crore issue on September 26.
In the SME segment, more than Rs 400-crore fund raising will be taking place next week with Arabian Petroleum, Newjaisa Technologies, Inspire Films, Saakshi Medtech and Panels, and Digikore Studios opening public issues during September 25-27.
The public offer of Sunita Tools will open for subscription during September 26-28, while the opening-closing dates for Goyal Salt and City Crops Agro IPOs would be September 26-29, and for Kontor Space, it would be September 27-29.
E Factor Experiences, Vinyas Innovative Technologies, and Canarys Automations will also launch their maiden public issues next week on September 27, and Vishnusurya Projects and Infra on September 29.
Among others, Organic Recycling Systems will close its public offer on September 26, while the closing date for Marco Cables & Conductors, Mangalam Alloys, and Hi-Green Carbon would be September 25.
As per the IPO schedule, Yatra Online will list on the bourses on September 29, as per the IPO schedule, while in the SME segment, Chavda Infra, and Holmarc Opto-Mechatronics will list their shares on the NSE SME on September 25.
Kundan Edifice will make its debut on the NSE Emerge on September 26, Kody Technolab and Cellecor Gadgets on September 28, and Master Components on September 29, while the listing of Techknowgreen Solutions will take place on the BSE SME on September 29.
Corporate action
Here are key corporate actions taking place next week:
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