US Fed Policy, crude oil prices, FII mood to guide market direction this week

Domestic benchmark indices Sensex and Nifty hit their fresh record highs last week with frontline index Nifty50 breaching the psychological 20,000-mark on the back of strong macroeconomic indicators such as lower consumer price index (CPI) print, demand optimism in China, and hints of a pause in rate hike by the US Federal Reserve.

The tone was positive from the beginning which strengthened further with rotational participation from the index majors across sectors. Frontline indices Sensex closed at 67,838.63, up 320 points, or 0.47 per cent on Friday, while the Nifty settled at 20,192.35, rising 89 points, or 0.44 per cent. 

The indices ended at their fresh lifetime highs propelled by a rally in global markets and renewed foreign capital inflows. During the day, Sensex rallied 408.23 points or 0.60 per cent to hit its fresh all-time intra-day peak of 67,927.23, while the Nifty50 reached an all-time intraday high of 20,223. For the week, both the Sensex and the Nifty rose almost 2 per cent each.

The Sensex rose for the eleventh straight session, adding 4.64 per cent over the period, logging its longest series of daily gains since October 3, 2007. Last week, the market received support from a set of positive global cues. 

‘’Some of the positive global cues include China’s recovery from deflation, cooling core inflation in the US, which supports the idea of a rate pause, and hints from the European Central Bank (ECB) about a potential pause in rates due to receding inflation,” said Vinod Nair, Head of Research at Geojit Financial Services.

However, after weeks of outperformance, a sharp slide in the broader indices in the middle ended their gaining streak and both midcap and smallcap indices ended on a flat note. The BSE Midcap index inched up by 0.09 per cent while the BSE Smallcap index rose 0.27 per cent. On the flip side, the BSE Smallcap index fell over a per cent and the Midcap index declined by half a per cent for the week ended September 15.

Among the key sectoral indices, IT, banking and pharma were among the top gainers while realty and energy closed in the red. Media and realty were also among major drags. Analysts expect the overall positive momentum to continue especially in the large cap while sectoral rotation is likely to be seen in the broader market.

“Elevated crude oil prices and concerns about inflation initially cast a shadow over the market. However, this negative sentiment was offset by robust domestic industrial and manufacturing production data, as well as a decline in inflation, which propelled the market to new highs,” said Geojit’s Vinod Nair.

‘’However, mid and small-cap indices faced pressure as profit booking set in, driven by overvaluation concerns and after reaching all-time highs,” added Nair.

Going forward, a buzzing week awaits the primary market with 10 new public issues to be rolled out for bidding, along with five listings across mainboard and small-and-medium enterprises (SME) segments. 

On the domestic front, the monsoon has regained its pace in most of the states in India, while surging crude oil prices and institutional flows will also play a vital role. Analysts reckon that various domestic and global macroeconomic indicators are expected to sustain the current momentum. Bulls will keenly eye Sensex and Nifty on further upside in the upcoming holiday-shortened week.

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

US Fed Policy, BoE, BoJ meeting outcomes:

In the upcoming week, investors will place a significant focus on monetary policy as US Federal Reserve policymakers convene for the latest Federal Open Market Committee (FOMC) meeting scheduled for Tuesday, with an interest rate decision anticipated for Wednesday, September 20. 

Market observers and analysts widely expect the US Fed to leave its benchmark overnight interest rate unchanged. Additionally, China will announce the loan prime rate for 1-year and 5-year loans on September 20 and the Japan inflation rate on September 22. 

The market may also react to some major macroeconomic data such as US S&P global manufacturing and services PMI, crude oil inventories, initial jobless claims, UK inflation, and Eurozone inflation. The movement of US dollar and US bond yields will impact the mood of foreign investors. 

‘’As we closely track the global indices, especially the US, we feel improvement in their performance would further support the prevailing bullish sentiment at our end. The Dow Jones Industrial Average (DJIA) has managed to hold the trendline support around 34,000 but needs sustainability above the 35,000 mark to reinforce the positive bias,” said Ajit Mishra, SVP – Technical Research, Religare Broking.
 

10 IPOs, 5 listings to hit D-Street:

In the coming week, 10 new initial public offerings (IPO) await the bourses among main board and SME segment. From the mainboard segment, Signature Global IPO and Sai Silks Kalamandir IPO will open for subscription on September 20, while Vaibhav Jewellers IPO will open on September 22.

From the SME segment, Madhusudan Masala IPO, Technowgreen Solutions IPO, Master Components IPO will open for subscription on September 18. Hi-Green Carbon IPO, Mangalam Alloys IPO, Marco Cables & Conductors IPO, and Organic Recycling Systems IPO will open on September 21.

Among listings, shares of Meson Valves will get listed on BSE SME and shares of Unihealth Consultancy will get listed on NSE SME on September 21. Also, shares of Jiwanram Sheoduttrai Industries will get listed on NSE SME on September 18. Additionally, shares of Jupiter Life Line Hospitals will get listed on stock exchanges BSE and NSE on September 18 and shares of EMS Ltd will get listed on September 21.
 

FII Inflow:

Foreign institutional investors (FIIs) have shifted gears and invested in Indian equities for the second straight session on Friday, September 15, after domestic equity benchmarks Sensex and Nifty scaled to lifetime highs.

As per the NSE data, FIIs cumulatively bought ₹33,124.28 crore of Indian equities, while they sold ₹32,959.86 crore — resulting in an inflow of ₹164.42 crore. The domestic institutional investors (DIIs) also infused ₹1,938.57 crore in Indian stocks.

Analysts reckon that even though the undercurrent of the market is bullish the high valuations and new risks like surging crude and rising dollar index can impact the market negatively. Brent crude at $94 is a major macro worry which the market cannot ignore for long.

‘’The rising dollar index which has breached 105 and the attractive US bond yields (10-year at 4.28 per cent) will force the FIIs to sell aggressively soon,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Foreign portfolio investors (FPIs) continue to be net sellers so far in September. FPIs have sold ₹4,768 crore worth of Indian equities and offloaded a total of ₹2,968 crore as of September 16, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL ) data.
 

Oil Prices:

Oil prices hit a 10-month high and posted a third weekly gain as supply tightness spearheaded by Saudi Arabian production cuts combined with optimism around Chinese demand to lift crude.

Brent crude futures rose 23 cents, or 0.3 per cent, to settle at $93.93 a barrel, while US West Texas Intermediate futures was up 61 cents, or 0.7 per cent, to close at $90.77 a barrel. Both contracts traded at 10-month highs on Tuesday for the fifth consecutive session, and gained about 4 per cent on a weekly basis.

Brent futures rose to a 10-month high as $94.63 in the session, their highest since November 2022. Oil prices are also on track for their biggest quarterly increase since Russia’s invasion of Ukraine in the first quarter of 2022, according to news agency Reuters.

High crude oil prices is likely to impact India’s current account deficit, currency, inflation, fiscal deficit and ultimately the overall domestic growth as the country is a net importer of crude oil. 
 

Corporation Action:

Shares of several companies including Steel Authority of India (SAIL), Mazagon Dock Shipbuilders, Rail Vikas Nigam Limited (RVNL), Mastek Ltd, among several others will trade ex-dividend in the coming week, starting from Monday, September 18. Check full list here

Additionally, shares of J.B Chemicals & Pharmaceuticals will declare a stock split from ₹2 to ₹1 on September 18 and Power Finance Corp (PFC) will declare a bonus issue in the ratio 1:4 on September 21.
 

Technical View:

From a technical perspective, since the Nifty has reached closer to its immediate hurdle of 20,300 and the banking index has also retested its record high, analysts see some consolidation now. 

‘’A decisive break above 20,300 would help the index to gradually move towards 20,700. Meanwhile, traders should continue with the “buy on dips” approach and maintain their focus on stock selection. On the downside, the 19,700-19,950 zone would act as a support in case of any dip. We suggest preferring large cap counters and advise staying selective in midcap and smallcap space,” said Religare Brokings’ Ajit Mishra.

Pravesh Gour, Senior Technical Analyst, Swastika Investmart Ltd agrees. Gour highlighted that the index is continuing its strong bullish momentum, with no signs of weakness yet. 

‘’However, traders should keep in mind that 20,000 is a key support level. As long as the Nifty remains above this level, bullish momentum is likely to continue towards the 20,400–20,500 zone. However, if the Nifty falls below 20,000, we can expect some profit-taking towards the 19,800–19,640 levels,” said Gour.

Meanwhile, Bank Nifty closed with a gain of over 2 per cent and is hovering around its all-time high of 46,369. If the Bank Nifty breaks above this level, Swastika Investmarts’ Pravesh Gour expects a short-covering rally towards the 46,600–47,000 zone. ‘’On the downside, 45,800 is an immediate support level. If Bank Nifty falls below this level, we can expect some profit-taking towards the 45,000 mark,” said Gour.

Arvinder Singh Nanda, Senior Vice President, of Master Capital Services Ltd noted that Bank Nifty appears to have established a robust demand zone within the 45,300-45,500 range. ‘’Looking ahead, it’s important to note that a resistance level is expected at 46,300,” said Nanda. Rupak De, Senior Technical Analyst at LKP Securities highlighted that the trend is anticipated to stay bullish as long as the Bank Nifty remains above the 46,000 mark. 

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

Updated: 17 Sep 2023, 06:12 AM IST