Week Ahead: Q2 Results, US bond yields, other global cues among key market triggers this week

Investors will eye a host of triggers in the last week of October- brimming with several key events that will guide market direction, including the next set of July-September quarter of fiscal 2023-24 (Q2FY24) results, macroeconomic data, foreign fund inflow, crude oil prices, and other global cues amid the Israel-Hamas conflict.

Indian markets edged lower in a volatile week and shed over a per cent, in continuation to the prevailing consolidation phase. The tone was slightly positive in early sessions, however, pressure in global markets changed the tone as the days progressed.

Domestic equity benchmarks Nifty 50 and Sensex ended in negative territory for the third consecutive session on October 20 as concerns about potential interest rate hikes by the US Federal Reserve, and the ongoing war between Israel and Hamas kept investors on edge.

US bond yields surged to 17-year high mark at 5 per cent as Federal Reserve Chairman Jerome Powell said last week that more interest rate hikes may be required to bring inflation down to a 2 per cent target because of a tight labour market and resilient US economy.

Also Read: These 48 smallcap stocks rise 10-30% even as Sensex sheds 1% on volatile week; do you own?

“Middle East tensions and elevated US bond yields steered the market to a consolidation path this week. A weak start to the earnings season, disappointment from IT sector, and a mixed bag of results from banks influenced investors to book profits from the table,” said Vinod Nair, Head of Research at Geojit Financial Services.

On Friday, Nifty 50 closed at 19,542.65, down 82 points, or 0.42 per cent while the Sensex ended the day at 65,397.62, down 232 points, or 0.35 per cent. Mid and smallcaps suffered bigger losses. The BSE Midcap index fell 1.02 per cent while the Smallcap index dropped 0.76 per cent.

In three sessions to Friday, Sensex dropped 1,030 points while Nifty tanked 268 points due to selling pressure. On the weekly front, the BSE benchmark plunged 885.12 points or 1.33 per cent and the Nifty declined 208.4 points or 1.05 per cent.

‘’Investors are likely to remain cautious in the near term due to concerns about the long implication of geopolitical tensions in the Middle East. We expect volatility to persist, although long-term investors will find bargain hunting opportunities due to an optimistic Q2 FY24 earnings estimate and a festival-driven demand environment,” added Geojits’ Nair.

Going forward, a busy week awaits the primary market as five new initial public offerings (IPOs) are slated across mainboard and small-and-medium enterprises (SME) segments. The week will be crucial from the domestic and technical point of view as investors will closely eye the ongoing Q2FY24 results. As the earnings season gains momentum, the market sentiment will be shaped by corporate’s management commentary and bottom-up investment approach, according to analysts.

Overall, analysts expect markets to remain volatile in the upcoming holiday-shortened week on global cues and the scheduled expiry of October month derivatives contracts. Participants will take cues from the movement of rupee against US dollar and crude oil prices, Israel-Hamas conflict, along with the activity of foreign investors.

Here are the key triggers for stock markets in the coming week:

Q2 Results:

The corporate results season for the second quarter of the current fiscal year (Q2 FY24) is underway. ICICI Bank, Yes Bank, RBL Bank, IDBI Bank, and Kotak Mahindra Bank announced their September quarter results on October 21. Axis Bank and Tech Mahindra on October 25, and Asian Paints on October 26. Bajaj Finserv, Bajaj Holding & Investment, Cipla, Reliance Industries Dr. Reddy’s, Maruti, among several others will announce their results on October 27.

‘’We expect earning season to pick up pace in a truncated week which would direct the market trend along with global cues…Banking sector will be in focus on Monday as investors would react to Q2 results of ICICI and Kotak Bank that would be announced over the weekend,” said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services.

5 IPOs open, 2 new listings to hit D-Street:

Blue Jet Healthcare IPO: The mainboard issue opens for subscription on Wednesday, October 25 and closes on Friday, October 27.

On Door Concepts IPO: The SME IPO opens for subscription on October 23, 2023 and closes on October 27, 2023.

Paragon Fine And Speciality Chemicals IPO: The SME IPO opens for subscription on October 26, 2023 and closes on October 30, 2023.

Shanthala FMCG Products IPO: The SME IPO of the FMCG product distribution company opens for subscription on October 27, 2023 and closes on October 31.

Maitreya Medicare Limited IPO: The SME IPO of the multispeciality hospital opens for subscription on October 27, 2023 and closes on November 1.

New Listings: Shares of Arvind and Company Shipping Agencies will get listed on NSE SME on October 25, while shares of WomanCart Limited will get listed on NSE SME on October 27.

FII Outflow:

Foreign portfolio investors (FPIs) remained net sellers in the third week of October, on a sharp spike in US bond yields. FPIs have sold ₹12,146 crore worth of Indian equities and offloaded a total of ₹6,555 crore as of October 20, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL ) data.

‘’The primary reason for the sustained selling was the sharp spike in US bond yields which took the 10-year yield to a 17-year high of 5 per cent on October 19. If the safest asset class in the world, the US bond, yields around 5 percent it is rational for FPIs to take out some money,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

On Friday, foreign institutional investors (FIIs) paused their selling spell and cumulatively bought ₹13,645.57 crore of Indian equities. They sold ₹13,189.36 crore — resulting in an inflow of ₹456.21 crore. ‘’Above all foreign investors now perceive India as the most stable emerging market with the best growth story,” added Dr. V K Vijayakumar.

‘’FIIs continued to withdraw funds as the US Fed Chair emphasised the imperative for continued monetary tightening policy and hold interest rate high,” said Geojits’ Vinod Nair.

Global Cues:

Global markets are currently fragile due to heightened attention on the rising US bond yield, global economic uncertainty, and also the geopolitical risks on the Israel-Hamas conflict. These factors will be closely monitored, as they have the potential to influence the global market sentiment. Investors will also monitor the US GDP print for further insights into the Fed’s interest rate trajectory.

Additionally, US unemployment claims, macro data from Asian markets, and another expected interest rate decision from the European Central Bank (ECB) will play a significant role in shaping the market mood in near term. Last week, domestic markets witnessed pessimism due to hawkish comments from the US Fed chairman.

‘’The tone of global indices, especially the US, would remain on participants’ radar for cues. After the failed attempt to surpass the hurdle at 34,200, the Dow Jones Industrial Average (DJIA) has resumed the corrective tone. Indications are in the favor of prevailing tone to continue and it may retest the previous swing low around 32,800, which could add pressure in other markets including ours,” said Ajit Mishra, SVP – Technical Research, Religare Broking.

Oil Prices:

Oil prices settled lower on October 20, after the Islamist group Hamas released two US hostages from Gaza, leading to hopes the Israeli-Palestinian crisis could de-escalate without engulfing the rest of the Middle East region and disrupting oil supplies.

Brent crude futures fell 22 cents, or 0.2 per cent, to settle at $92.16 a barrel. US West Texas Intermediate crude futures for November delivery, which expired after settlement on Friday, fell 62 cents, or 0.7 per cent, to $88.75 a barrel. The more-active December WTI contract closed 29 cents lower at $88.08 a barrel.

Both contracts had gained more than a dollar per barrel during the session on signs of escalation of the conflict. For the week, both front-month contracts rose over 1 per cent, a second straight weekly jump, according to news agency Reuters.

‘’The US is aiming to buy as much as 6 million barrels of sour crude for delivery to the strategic petroleum reserve in December and January. We expect oil prices to remain buoyed amid higher risk premium,” said Ravindra Rao, CMT, EPAT, VP-Head Commodity Research, Kotak Securities.

Corporate Action:

Dividend Stocks: Shares of several companies including Infosys, ICICI Lombard General Insurance Company, L&T Tech Services, among several others will trade ex-dividend in the coming week, starting from Monday, October 23. Few stocks will also trade ex-split and ex-bonus in the coming week. Check full list here

Technical View:

Nifty has been hovering in a range i.e. 19,300-19,850 for almost a month now and inching lower after retesting the upper band. Technically, on daily and intraday charts, the Nifty formed a double top formation and reversed.

‘’Post reversal, the index is comfortably trading below the 20 and 50 day SMA (Simple Moving Average) which is largely negative. On weekly charts it has formed a bearish candle which is indicating continuation of weakness in the near future,” said Amol Athawale, Vice President – Technical Research, Kotak Securities.

Analysts feel fresh weakness in the banking majors combined with the resumption of decline on the global front could push the index lower and 19,200-19,450 would continue to act as a crucial support zone.

‘’Resilience in select heavyweights from auto, FMCG, pharma and realty majors would continue to offer buying opportunities. Traders should align their positions accordingly and prefer hedged trades,” said Religare’s Ajit Mishra.

Analysts also said that Nifty is still in consolidation mode, where 100-DMA of 19,400 is an immediate support and 19,250–19,300 is a critical demand zone. ‘’On the upside, 19,700 is an immediate hurdle, and 19,850 is a critical hurdle. Only a move above 19,850 can lead to strength in the market, while a fall below 19,250 can lead to selling pressure,” said Pravesh Gour, Senior Technical Analyst, Swastika Investmart.

On the other hand, the Bank Nifty index has been locked in a persistent struggle between bullish and bearish forces, resulting in a period of consolidation that has extended for the past two days. The index is currently teetering at a crucial “make or break” point. The level of 43,500 is regarded as decisive, according to analysts.

‘’A breach below the 43,500 level is anticipated to trigger additional selling pressure in the market. On the other hand, if this level manages to hold on a closing basis, it could prompt a substantial short-covering rally. The potential target for such a move is around 44,500, where there is a notable accumulation of open interest on the call side,” said Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities.

Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.