Moneycontrol
Jun 17, 2017 08:13 PM IST | Source: Moneycontrol.com

What to expect in the market week ahead: 8 things you should know

Experts feel a 9,580 level could be immediate support for the Nifty and the next would be 9,500.

What to expect in the market week ahead: 8 things you should know

Sunil Shankar Matkar

Moneycontrol News

Equity benchmarks closed lower last week after a tight trading range. The market appeared to get tired after hitting a lifetime high of 9,709 on Nifty on June 6, especially owing to lack of cues on the domestic as well as global front. The 30-share BSE Sensex was down 0.66 percent at 31,056.40 and the 50-share NSE Nifty lost 0.83 percent to 9,588.05 in the week gone by.

The majority of events - likely double digit earnings growth, hope of early NPA resolution, normal monsoon expectations, faster clearance to GST - seem to have already been discounted. Continued flow of money from FIIs as well as DIIs supported the market to mark a 17 percent rally since the beginning of the current calendar year. On the global front as well, the Federal Reserve's rate hike was not unexpected by the market.

Over the last one year, domestic mutual funds have net bought over Rs 70,000 crore of Indian equities, while foreign funds have net bought around Rs 60,000 crore of shares.

As the market is currently highly valued, it needs a firm trigger to surpass its recent record high, otherwise there could be directionless trade in the weeks ahead. Hence, all eyes are on GST implementation (expected to effective from July 1) and monsoon progress. June quarter earnings, which will begin next month, will also be closely watched.

"Strong inflows into mutual funds have led to the view that valuations can stay rich as long as the inflows continue," Abhay Laijawala, Head of Research, Deutsche Equities told Moneycontrol. “Valuations are very rich at 19 times, and market is expecting earnings growth to be around 20 percent. If there is a resumption of earnings downgrade because of whatever reason, including GST (Goods and Services Tax), valuations will look far richer than what they are.”

Everyone is convinced that India is a long-term growth story, but as GST implementation date is approaching fast and experts expect it to hit corporate earnings for one or two quarters, there has been a cautious approach towards trading in market.

The Nifty held its immediate support level of 9580 in the passing week, which will be closely watched in the week ahead. The next support level could be 9500.

After two weeks of consolidation, the market may see some rebound initially in the coming week, but is overall expected to be rangebound owing to the lack of a trigger and especially ahead of June F&O expiry due on June 29.

"Rangebound movement is likely to continue, given combined open interest on Nifty 9,600 strike at around 1.1 crore shares along with maximum open interest at 9,500 puts and 9,700 calls," Amar Ambani of IIFL Private Wealth said.

Vijay Singhania, Founder-Director of Trade Smart Online, advised investors to remain cautious at current levels. "A drop below 9,500 would be an opportunity to go short on the IT and pharma stocks while a break above 9,700 should be used to go long on the financials," he said.

Singhania further said another factor to watch out going ahead would be that the deadline of implementation of SEBI-enhanced supervision is also approaching, in which clients’ margin funding has been regulated and in no case it will go beyond T+2+5 days. The start date is July 1, 2017.

Here are 8 factors to watch out for in the week ahead:-

GST

The Goods and Services Tax (GST) Council, headed by Finance Minister Arun Jaitley, will meet on June 18 to approve the draft pending rules pertaining to advance ruling, appeals and revision, assessment and audit, as well as e-way bill.

The Council will also take stock of the preparedness of the new tax system that promises to stitch together a common national market.

Other pending issues that stand before the Council are finalising the rules and framework of anti-profiteering body, fixing service tax for lottery and reviewing rates of some goods and services, as requested by various industry associations.

The Council may meet once more before the rollout of the new indirect system from July 1.

Monsoon

So far, weather forecast agencies are of the view that the monsoon is expected to be normal. They expect it to be better in July and August, though it has not been up to the mark in June so far.

Recently, Met department raised its forecast of seasonal rainfall to 98 percent of long term average from the earlier forecast in April of 96 percent of long term average.

If it comes true, then it will definitely boost economic growth and help several dependent industries (directly or indirectly) to show better earnings growth, experts said.

NPA meeting

The Prime Minister's Office has called a meeting of senior officials of the ministries of finance and corporate affairs on June 19, to review the progress in resolution of non-performing assets (NPAs) after recent action taken by the Reserve Bank of India on stressed assets.

The banking sector is saddled with bad loans of over Rs 8 lakh crore, of which Rs 6 lakh crore is on the books of public sector banks.

On June 13, the Internal Advisory Committee constituted by RBI identified 12 accounts for insolvency proceedings with each of them having over Rs 5,000 crore of outstanding loans, accounting for 25 percent of total NPAs of banks. These accounts would qualify for immediate reference under the Insolvency and Bankruptcy Code (IBC), RBI said.

During the week, sources told CNBC-TV18 that the Reserve Bank of India sent bankers the list of 12 stressed accounts that they must resolve through the Insolvency and Bankruptcy Code (IBC). The 12 accounts are Essar Steel, Bhushan Steel, Bhushan Power, Alok Industries, Electrosteel Steels, JP Infra, Lanco Infratech, Monnet Ispat, Jyoti Structures, ABG Shipyard, Amtek Auto and Era Infra.

Sources further said Monnet Ispat & Energy (which has debt of about Rs 12,000 crore) and Essar Steel (Rs 40,000 crore) received Insolvency & Bankruptcy Code notice.

IPO

The primary market is expected to be in focus as a couple of initial public offerings will be opened for subscription next week.

"We expect that this on-going fund raising through primary and secondary markets to gain momentum and is unlikely affect overall market liquidity and valuations," Singhania said.

In the coming week, the 3.51 crore shares IPO of Central Depository Services (CDSL) will open for subscription on June 19, with a price band of Rs 145-149 per share. The issue will close on June 21.

GTPL Hathway will also launch its IPO, comprising of fresh issue of aggregating up to Rs 300 crore and an offer for sale of up to 1.8 crore shares, on June 21. It has fixed price band at Rs 167-170 per share for the issue that will close on June 23.

Ahmedabad-headquartered Eris Lifesciences' Rs 1,741.1 crore public issue will close on June 20. The price band of the issue is Rs 600-603 per share.

Technical Outlook

Experts feel a 9,580 level could be immediate support for the Nifty and the next would be 9,500. According to them, it could trade in the range of 9,500-9,700 levels.

Singhania said Nifty 9500 Call and 9700 Put strikes continue to remain the highest open interest strikes. Both the strikes added fresh short positions, which indicate a floor and ceiling price for the index in the coming week, he added.

"All other momentum indicators have now started declining but the downside seems to be protected by a strong level of 9540 where only a close below could bring more downside pressure over short term. On the flip side, 9650 will be the strong resistance for the coming week above which bulls should remain in control over the bears and would attract more upside," Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments said.

Stocks in focus

On Monday, Monnet Ispat may react negatively as sources told CNBC-TV18 that the company received Insolvency & Bankruptcy Code notice. Essar Steel also received the notice in 2016, sources added.

Dr Reddy's Labs will also be in focus as the USFDA issued Form 483 with 1 observation to Srikakulam plant.

Dredging Corporation may be in action on Monday as sources told CNBC Awaaz that Draft cabinet note floated to sell 100 percent government equity in 5 companies, including HLL Life Care and Dredging Corporation.

Asian Paints may open higher on Monday as the company entered share purchase agreement with Ansa Coatings International for divesting entire stake in Lewis Berger.

Kotak Mahindra Bank may also be in action as the Competition Commission has given its approval for the bank to buy British partner Old Mutual's 26 percent stake in its life insurance arm for Rs 1,293 crore.

Corporate Action

ICICI Bank will trade ex-bonus (one bonus equity share for every 10 shares held) from June 20.

On June 22, the face value of Arcotech will split from Rs 10 to Rs 2 while Godrej Consumer Products will adjust for bonus issue (in the proportion of one share for every share held).

Kitex Garments will also start trading ex-bonus on June 22 (two bonus shares for every five shares held).

Atlas Cycle and recently listed PSP Projects will declare their March quarter earnings on June 19 while JK Cement will consider fundraising plan on June 23.

Can Fin Homes and Shailja Commercial Trade Frenzy will consider sub-division of shares on June 23.

Among others, Torrent Pharma, ICICI Bank, Havells India, PC Jeweller, GHCL, UPL, Hindustan Unilever, Goa Carbon, Shriram City, Bank of Baroda and Welspun Corp will trade ex-dividend during the week.

Global cues

The non-monetary policy meeting of the governing council of the European Central Bank (ECB) will be held in Frankfurt on June 21 while the general council meeting of the ECB will be held in Frankfurt on June 22.

FOMC member William Dudley and Chicago Fed President Charles Evans will speak on June 19 while Stanley Fischer, Eric Rosengren and Robert Kaplan will speak on June 20.

Japan's monetary policy minutes and US home sales data for May will be announced on June 21.

The data on Japan Manufacturing Purchasing Managers' Index (PMI); Europe's Manufacturing, Markit Composite & Services PMI; US' Manufacturing & Services PMI for June is expected to be released on June 23.

United States' new home sales data for May will also be announced on June 23.
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