RBI Policy, Q2 updates, global cues to guide market direction this week

Domestic equity benchmarks posted their best day in nearly three weeks on Friday, led by gains in banks and metal stocks, helped by a recovery in US and European markets following a sell-off. Nifty 50 closed the day at 19,638.30, up 115 points, or 0.59 per cent while the Sensex closed at 65,828.41, up 320 points, or 0.49 per cent. 

On the weekly front, the BSE benchmark fell 180.74 points or 0.27 per cent, and the Nifty declined 35.95 points or 0.18 per cent. The indices declined for the second week in a row. Nifty Realty and pharma rose the most whereas IT and Media declined the most this week. The IT index has lost about 5 per cent in the last two weeks.

‘’Due to low liquidity and a lack of catalysts to stimulate buying, the market is encountering strong resistance at higher levels. Throughout the week, IT stocks underperformed due to adverse global cues, while the pharma sector witnessed strong buying interest as investors adopted a defensive strategy in response to global uncertainties,” said Vinod Nair, Head of Research at Geojit Financial Services.

In September, the domestic market witnessed volatility as concerns over higher interest rates, foreign capital outflow and global economic slowdown weighed on sentiment. However, the Nifty 50 ended the month with a gain of 2 per cent while the Sensex rose 1.5 per cent. 

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The BSE Smallcap index also rose about a per cent. The BSE Midcap index, on the other hand, jumped 3.7 per cent in September. The Nifty index gained more than 2 per cent during the July-September quarter, but closed lower for a second straight week, dropping 0.2 per cent.

“Amidst mounting concerns stemming from escalating crude oil prices and inflationary pressures, which were compounded by fears of another rate hike by the Fed, the domestic market grappled with volatility. The increase in US bond yields and volatility in the INR further diminished the attractiveness of domestic indices for foreign investors.,” said Geojits’ Vinod Nair.

‘’Yet the market concluded the week on a positive note, boosted by healthy momentum in industrial growth, up by 12 per cent year-on-year. Volatility is expected to remain elevated in the short term, given the upside risk of domestic inflation on account of higher crude prices,” added Nair.

Going forward, a buzzing week awaits the primary market on several ongoing initial public offerings (IPOs) across mainboard and small-and-medium enterprises (SME) segments. The week will be crucial from the domestic point of view as investors have shifted their focus to the RBI MPC meeting’s decision on the key interest rates.

Overall, analysts expect the market to trade in a broader range in the holiday-shortened week as the higher oil price has rekindled inflation worries, with the tone likely to remain bearish until Nifty breaches the 19,750-mark.

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

RBI MPC Meeting

Amid expectations that the central bank will keep the benchmark interest rates unchanged, the rate-setting monetary policy panel will begin deliberations in the coming week. Headed by RBI Governor Shaktikanta Das, the six-member MPC will meet for three days – from October 4 to October 6, and the decision will be announced on Friday, October 6 at 10 am by the RBI Governor. 

The RBI has kept the repo rate unchanged at 6.5 per cent since February this year. This will be the central bank’s fourth MPC meeting for fiscal 2023-24. In the run-up to the MPC decision, rate-sensitive stocks will be in focus throughout the week. 

The market largely expects the central bank to continue its current stance as India’s retail inflation continues to remain above its upper tolerance limit of six per cent and the US Federal Reserve has decided to keep a hawkish stance.
 

Q2 Updates, Auto Sales

Investors will be busy analyzing corporate earning estimates/updates announced by several companies in the coming week as the first batch of Q2FY24 results are set to be released from October 11 – starting with tech major Tata Consultancy Services (TCS).

On the macro front, market participants will be closely observe key numbers such as forex reserves, auto sales figures of September, surprise announcements on commercial cooking gas rates or petrol and diesel prices. 
 

15 IPOs close, 7 new listings to hit D-Street

In the mainboard segment, Valiant Laboratories IPO closes on October 3 and Plaza Wires IPO closes on October 4. Apart from the mainboard IPOs, as many as 13 SME IPOs are closing in the upcoming week ending October 6. Check full list here

Among listings, shares of Vaibhav Jewellers and JSW Infrastructure from the mainboard segment will debut on BSE and NSE on October 3. Along with these, Mangalam Alloys, Organic Recycling Systems, Digikore Studios, Saakshi Medtech and Panels, and Inspire from the SME segment will also get listed this week.
 

FII Inflow

Foreign institutional investors (FIIs) have sold ₹25,000 crore in cash markets in September, triggered by global cues such as rising US bond yields and stronger US dollar. Foreign portfolio investors (FPIs) also turned net sellers in September because strength in the above-mentioned US market indicators are short-term negatives for FPI capital flows to emerging markets like India, according to analysts. 

High crude oil prices in the last week of September also weighed on FPIs market behavior. Domestic institutional investors (DIIs) infused a total of ₹19,310 crore, that closely countered FII selling and imparted resilience in markets.

‘’Last Friday (29th Sept) witnessed marginal decline in the dollar index, US bond yields and Brent crude. This has emboldened the DIIs to buy aggressively thereby imparting resilience to the market,” said Geojits’ Dr. V K Vijayakumar. ‘’Even while selling, FPIs were buyers in capital goods and selected financials,” he added.
 

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Global Cues

Global markets are in a brittle mode because investors are eyeing the US shutdown deadline, US bond yield, and the US dollar index. These factors will be closely monitored, as they have the potential to influence market sentiment. 

US 10-year bond yield rose above 4.5 per cent for the first time since 2007 and the US dollar index is trading at a 10-month high. The dollar has jumped on expectations that the US economy will remain more resilient to higher interest rates after the Federal Reserve last guided that it may hike rates further and is likely to hold them higher for longer.

These indicators, along with high crude oil prices, triggered FII and FPI selling, causing volatility in Indian stock markets as well as commodity markets. Aside from that, market participants will be keeping an eye on the movement of the rupee against the dollar and crude oil rates, according to Pravesh Gour, Senior Technical Analyst, Swastika Investmart Ltd.

In the upcoming week, the market will take cues from some major global macroeconomic data such as US ISM manufacturing PMI and US ISM services PMI for September will be scheduled on October 2 and October 4, respectively.

The S&P global manufacturing PMI and services PMI data of other countries, API weekly crude oil stock, meeting by the Organisation of Petroleum Exporting Countries (OPEC) on October 4, US factory orders, crude oil inventories, US initial jobless claims, US non-farm payroll, US unemployment rate will also be in focus next week and may shape the market mood in the near term.

‘’We are largely trading in sync with our global counterparts and expect the pressure to extend citing their prevailing structure. Among the key markets, The US benchmark, the Dow Jones Industrial Average (DJIA), is trading well below its long term moving average(200 EMA) and a break below 33,200 could further deteriorate the condition,” said Ajit Mishra, SVP – Technical Research, Religare Broking Ltd.

Oil Prices

Oil prices settled 1 per cent lower in the previous session due to macroeconomic concerns and profit taking, but rose about 30 per cent in three months as the production cuts announced by Saudi Arabia and Russia have squeezed global crude supply. Brent almost touched $98/barrel-mark last week after official data showed that US crude stocks fell more than expected, adding to worries about supply tightness amid production cuts by the OPEC.

With oil futures inching closer to $100 a barrel, many investors took profits on the rally given ongoing macroeconomic concerns. Crude prices going above $100 per barrel mark brings inflationary pressures on global economy and will compel central banks to raise interest rates all over again.

Front-month Brent November futures settled down 7 cents to $95.31 per barrel at the contract’s expiry, up about 2.2 per cent in the week and 27 per cent between July-September. US West Texas Intermediate crude (WTI) settled down 92 cents to $90.97, up 1 per cent in the week and 29 per cent in the quarter, according to news agency Reuters. OPEC’s upcoming October 4 meeting on global supply changes will guide the year-end outlook for crude oil prices.
 

Corporate Action

Accelya Solutions India declared a final dividend of ₹30. Shares will trade ex-dividend on October 6. Yug Decor declared a bonus issue in the ratio 15:100 and will trade ex-bonus on October 5. Surya Roshni will undergo a stock split from ₹10 to ₹5 on October 6.
 

Technical View

Nifty 50 has experienced a notable correction, declining approximately 3 per cent from its all-time high has made multiple attempts to cross the hurdle of short term moving average i.e. 20 EMA last week but could not succeed.

‘’Going ahead, the tone would remain bearish until it crosses 19,750 and expect 19,200-19,450 zone to be tested soon. On the flip side, a decisive break above that mark may fuel recovery to 19,850-20,000. Amid all, mixed trends across sectors and buoyancy on the broader front are offering trading opportunities on both sides so participants should continue with stock-specific approach, with focus on risk management,” said Religare Brokings’ Ajit Mishra.

Arvinder Singh Nanda, Senior Vice President, of Master Capital Services agrees. ‘’One key level to watch is 19,500, which represents a significant demand zone. This level is likely to attract more buyers who see it as an opportunity to enter the market for upside potential to 20,000. Below 19,500 it is likely to be a bearish sign for the targets of 19,000-18,800,” said Nanda.

‘’On the weekly chart, we are witnessing some encouraging signs of bullish momentum. The formation of a bullish Doji star pattern, coupled with the presence of a bullish trendline originating from the downward movement, suggests a potential reversal in sentiment,” he added.

Meanwhile, Bank Nifty saw a resurgence in bullish momentum as the bulls successfully defended the key support level at 44,200. However, challenges persist as the 20-day moving average (20DMA) at 45,000 continues to act as a strong resistance, according to analysts.

‘’The index appears to be consolidating within a range, with levels of 44,200 on the downside and 45,000 on the upside defining this range. A decisive break on either side of this range will likely trigger fresh trending moves. In particular, the support at 44,200 is crucial and could determine the index’s near-term direction,” said Kunal Shah, Senior Technical & Derivative analyst at LKP Securities

Master Capital Services’ Nanda observes that the index appears to have established a robust demand zone within the 44,000-44,200 range, making it an opportune area to initiate buying positions price drop to that level. ‘’Looking ahead, it’s important to note that there is a resistance level expected at 45,000-45,200, which could pose a challenge for further upward movement in the index,” he added.

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: 01 Oct 2023, 06:20 AM IST