Q2 Results, US Fed Policy, global cues to guide market direction this week
Domestic equity benchmarks Nifty 50 and Sensex plunged sharply lower in the past week and lost more than 2.5 per cent, the steepest such drop since the week ended September 22, mostly weighed by week global cues. The blue-chips bounced back by 1 per cent, in the final session on Friday, October 27, snapping a six-day losing streak, supported by some healthy corporate results and value-buying in auto, IT, financial and energy stocks.
On Friday, Nifty 50 closed 190 points, or 1.01 per cent, higher at 19,047.25 while the Sensex closed at 63,782.80, up 635 points, or 1.01 per cent. Mid and smallcaps outperformed the benchmarks. The BSE Midcap index rose 1.70 per cent while the smallcap index ended with a gain of 1.89 per cent on October 27.
Sensex and Nifty have slipped 3.18 per cent and 3.17 per cent in the last seven days, posted their worst weekly decline in one month. During the week, all sectoral indices ended in red with media and metal declining the most.
In the broader markets, the domestically focused small- and midcaps have lost 5.1 per cent and 6.4 per cent, respectively in the past six sessions. However, they are still up 30 per cent and 23 per cent, respectively, so far this year, well above the Nifty’s 5.2 per cent increase.
In six trading sessions till October 26, Sensex had declined 3,279.94 points. The domestic market has been under pressure in October because of foreign capital outflow, unimpressive July-September quarter results, record-high US bond yields and Middle East tensions. Nifty 50 is down about 3 per cent this month so far.
Market experts highlighted that the frontline indices ended a three-month long consolidation phase, with the tone being bearish for most of the week but some losses were trimmed in the final session. The ongoing unrest in West Asia and concerns over the potential impacts of higher interest rates on future economic growth have resulted in a decline in investor confidence, according to experts.
‘’The ongoing market consolidation, sectors such as FMCG, consumption, fertilizers, and core segments like infrastructure, housing, are expected to present potential growth opportunities,” said Vinod Nair, Head of Research at Geojit Financial Services.
‘’Contributing factors include the mitigation of risks associated with raw material costs and a stable long-term demand outlook from external sectors, which may specifically support sectors like Chemical and Pharma in the medium-term. In the short-term, market sentiment remains cautious,” added Nair.
Going forward, a busy week awaits the primary market as seven 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 along with key domestic and global events.
Overall, analysts expect the market to continue with its volatile move this week and suspect that the benchmarks are not out of the woods yet. D-Street estimates that some resolution is needed between the ongoing Israel-Hamas war for the markets to remain buoyant.
Here are the key triggers for stock markets in the coming week:
Q2 Results, Auto Sales:
Investors will be busy analyzing corporate earnings in the coming week with the growing momentum of Q2FY24 results. However, markets will begin the week by reacting to the September quarter results of Reliance Industries, Bharat Petroleum Corporation Ltd (BPCL), NTPC, IDFC First Bank, among few others on Monday as these companies declared their quarterly results during the weekend or post-market hours on Friday.
Several major companies will be announcing their quarterly results in the upcoming week such as Marico, TVS Motors, UPL, Castrol India, GAIL, Tata Consumer Products, Hero Motocorp, Ambuja Cement, Sun Pharma, Berger Paints, Dabur, Tata Steel, Tata Motors, MRF, Titan, State Bank of India, and others.
Monthly auto sales figures are expected to draw attention, particularly because they will reflect the demand during the Dusshera festival season.
Manufacturing PMI Data:
From a macroeconomic perspective, market participants will be closely observing key events including the upcoming release of the India’s S&P Global India Manufacturing and Services PMI (October).
India’s factory activity expanded at the slowest pace in five months in September but remained solid, with strong demand driving business confidence to its highest level this year. The Manufacturing Purchasing Managers’ Index, compiled by S&P Global, fell to 57.5 in September, from 58.6 in August. The S&P Global India services PMI stood at 61 in September, up from 60.1 in August.
US Fed Policy, BoJ meeting outcomes:
In the upcoming week, investors will place a significant focus on the monetary policy, particularly due to the multiyear high levels of US bond yields. The US Federal Reserve policymakers will convene for the latest Federal Open Market Committee (FOMC) meeting scheduled for Tuesday, with an interest rate decision anticipated for Wednesday, November 1.
Additionally, the policy decisions of the Bank of Japan (BoJ) will be closely watched as the US dollar has breached the 150-yen mark, impacting the currency markets.
7 new IPOs, 1 new listing to hit D-Street:
In the coming week, Cello World IPO and Honasa Consumer Limited IPO are opening in the mainboard segment, while Transteel Seating Technologies IPO, Vrundavan Plantation IPO, Mish Designs IPO, SAR Televenture IPO, and Baba Food Processing IPO are opening in the SME segment. Check details here
Among listings, shares of Rajgor Castor Derivatives will get listed on NSE SME on Tuesday, October 31.
FII Outflow:
According to NSE data, foreign institutional investors (FII) have remained net sellers in October 2023. They have sold out Indian stocks worth near ₹2,600 crore till October 27. The FIIs selling in October 2023 is the highest since January 2023. FIIs sold around 13,186 crore in the cash market last week. Yet, DIIs have provided full support to the Indian stock market as they have bought shares worth ₹23,437 crore in this month.
Also, foreign portfolio investors (FPIs) have emerged as net sellers for the second consecutive month in October on a sharp spike in US bond yields amid ongoing geopolitical tensions in the Middle East.
FPIs have sold ₹20,356 crore worth of Indian equities and offloaded a total of ₹14,561 crore as of October 27. FPIs have reversed the prior three-month trend of sustained buying with analysts saying that surging US bond yields have been the major reason for the outflows since last month.
“FII flows are likely to stay volatile in emerging markets, including India, due to weak global factors. Renewed uptick in US bond yields has led to risk-off sentiment amongst the investors who are deploying funds in safe haven assets,” said Shrikant Chouhan, Head of Research (Retail), Kotak Securities.
‘’The west Asia conflict and a mixed Q2 earnings so far has made investors jittery about the near term prospects of domestic markets, leading to sell offs. Once the valuations start becoming attractive and volatility reduces, foreign inflows could make a comeback,” added Chouhan.
Global Cues:
US 10-year bond yield rose more than 5 per cent, the highest since July 2007 amid factors like inflation risks, rising crude oil prices and interest rate signals from the US Fed Reserve. ‘’It is expected that the interest rate will rise further as inflation is still not under control and could spike again due to higher energy prices,” said Arvinder Singh Nanda, Senior Vice President, of Master Capital Services.
Beyond this, the ever-changing geopolitical risk on the Israel-Hamas war will influence market sentiment. Markets will also react to global economic events including China manufacturing and non-manufacturing PMI, Eurozone inflation and GDP Data, crude oil inventories, UK manufacturing PMI, US non-farm employment change, initial jobless claims, and the policy decisions by the global central banks.
Analysts highlighted that continuous weakness on the global front is weighing on the sentiment.
‘’The volatility of the global market is expected to delay the recovery trend of the domestic market, since the global market is focused on the risk of further slowdown of the global economy due to elevated interest rate and geo-political tension,” said Geojits’ Vinod Nair.
Among the major markets, the US markets have been declining for the last 3 months and there is no sign of reversal yet, according to market experts.
‘’Though the existence of support around 32,500 may prompt some rebound, sustainability seems difficult to multiple hurdles around the 33,200-33,500 zone. On the flip side, 31,600 would be the next major support, in case of a breakdown,” said Ajit Mishra, SVP – Technical Research, Religare Broking.
Oil Prices:
Oil prices climbed about 3 per cent to hit a one-week high in the previous session on worries that tensions in Israel and Gaza could spread into a wider conflict that could disrupt global crude supplies. Brent futures rose $2.55, or 2.9 per cent, to settle at $90.48 a barrel, while US West Texas Intermediate (WTI) crude rose $2.33, or 2.8 per cent, to settle at $85.54.
For the week, Brent was down about 2 per cent and WTI down about 4 per cent, according to news agency Reuters. Middle East developments have so far not directly affected the global oil supplies, but many fear disruptions of exports from major crude producer and Hamas backer Iran and others.
‘’Crude oil prices declined in response to a pessimistic growth outlook in the Euro-zone and the robust performance of the dollar index. The dollar index has maintained its position above 106, and US 10-year bond yields are currently at 16-year highs, which has curbed the upswings in global commodity prices,” said Rahul Kalantri, VP Commodities, Mehta Equities.
‘’Anticipating the week ahead, we foresee continued volatility in crude oil prices, influenced by fluctuations in the dollar index and ongoing tensions in the Middle East,” added Kalantri.
Corporate Action:
Shares of several companies including Nestle India, Happiest Minds Technologies, Hindustan Unilever Ltd (HUL), Asian Paints, NTPC, Tech Mahindra, among several others will trade ex-dividend in the coming week, starting from Monday, October 30. Check full list here
Additionally, Cantabil Retail India will undergo a stock split from ₹10 to ₹2. Shares will trade ex-split on November 2, according to BSE.
Technical View:
The bulls endured a tumultuous week in the stock market last week with the Nifty index plummeting by over 700 points at one point. ‘’Investors are advised to start accumulating positions, but caution is necessary, especially since the market hasn’t shown strong signs of a reversal yet,” said Santosh Meena, Head of Research, Swastika Investmart.
Nifty tested the long term moving average (200 EMA) after six months. The index found support at the 200-Day Exponential Moving Average (DEMA). ‘’This support level was crucial, especially considering the oversold conditions in the market. As a result, there’s potential for a pullback or a short-covering rally,” said Meena.
The index has already retraced ~7 per cent from its record high but a breakdown below 18,800 could trigger the next leg of a slide to 18,200-18,500 zone. In case of a rebound, the hurdle around the 19,200- 19,500 zone would cap the upside, according to Religare Broking.
Analysts say that real confidence in an upward trend will only be established if the Nifty manages to surpass the 19,550 or even 19,700-mark.
‘’Among the key sectors, banking still looks weakest while select stocks from the auto, realty, FMCG and pharma are still holding strong so plan your trades accordingly. Since choppiness is high on the broader front, traders should prefer index majors, with focus on shorting opportunities on the rise,” said Religare Brokings’ Ajit Mishra.
Bank Nifty presents an intriguing scenario and prices are relatively more bearish than nifty as they dropped below their crucial support area and 50-week EMA, according to analysts.
‘’Following the ongoing technical development, we believe sell the rise will remain in favor. On the lower side, 42,000 will act as immediate support, while on the higher side, a gain towards 43,500-43,800 will accelerate selling pressure,” said Master Capital Services’ Arvinder Singh Nanda.
‘’If there’s a market reversal from this point, Bank Nifty could lead the way due to short-covering and value-based buying. To the downside, 42,000 and 41,500 are important support levels to monitor,” added Santosh Meena.
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.
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Updated: 29 Oct 2023, 06:08 AM IST
