Moneycontrol
Nov 19, 2017 03:39 PM IST | Source: Moneycontrol.com

Market Week Ahead: 10 key things that will keep investors busy next week

Experts feel crude oil prices is the risk to India that everyone knows, but the next key thing to watch out for would be Gujarat Assembly Elections (1st phase on December 9 and 2nd on December 14 and results on December 18), apart from RBI monetary policy (December 5-6) and Federal Reserve meet (December 12-13).

The rally driven by surprised Moody's India rating upgrade and positive global cues in last two consecutive sessions helped the market offset initial losses (due to rising crude oil prices and widening trade deficit) in the passing week. The Nifty shed 0.37 percent and the Sensex ended flat. Some profit booking was seen in late trade on Friday, otherwise it would have been a positive close for the market.

Now the market digested rating upgrade, September quarter earnings season that was stable-to-better-than-expected, and crude prices that eased after hitting 2-1/2 years high. Even the GST shocks are behind as the government has been trying hard to solve each and every problem and make it simpler for everyone.

"The recently concluded Q2FY18 earnings season sets the tone for the future. After some initial hiccups in July post the implementation of GST, majority of businesses in the listed space appear to be gradually stabilising. The trend in numbers reported by consumer companies was encouraging. This together with the Government’s thrust on rural spend augurs well for a possibility of recovery in rural demand," Shibani Kurian, Senior Vice President and Head of Equity Research, Kotak Mutual Fund said.

"We remain hopeful of further improvement corporate earnings especially once the impact of GST implementation fades."

Experts feel crude oil prices is the risk to India that everyone knows, but the next key thing to watch out for would be Gujarat Assembly Elections (1st phase on December 9 and 2nd on December 14 and results on December 18), apart from RBI monetary policy (December 5-6) and Federal Reserve meet (December 12-13).

Till then, they feel, the market is expected to be rangebound and the stock specific action would be seen but the sharp correction is unlikely.

The domestic inflow is very strong and that is likely to continue, and second half of FY18 earnings are expected to be better than first half, they reasoned while saying we are in bull run.

Morgan Stanley remains optimistic on India as the macros are on a solid footing, the economic growth is turning around and earnings picture is certainly looking lot healthier.

"One-time effect of demonetisation and the GST implementation are largely behind us. And the growth is likely to surprise on the upside over next one year," Ridham Desai of Morgan Stanley said in an interview to CNBC-TV18.

According to experts, if major correction happens then that could be because of any global cues or any disappointment from Modi government. But that correction should be bought into, they advise.

Kurian said India’s fiscal situation, pace of resolution of banking sector stress and monetary policy outlook would be some of the key data points to monitor going forward.

In the near term market sentiment would also be driven by the outcome of some of the state elections as well as the trajectory of GDP growth, he added.

The movement of global oil prices and any geo political developments would be some of the key external risks which one should be mindful of, according to him.

Here are 10 key things to watch out for next week:-

After Moody's, other rating agencies' move will be watched

India's sovereign credit rating upgrade by Moody’s to 'Baa2' from 'Baa3' for first time since 2004 and change in its outlook on the rating to stable from positive, citing continued progress in economic and institutional reforms on Friday cheered the markets.

Now the market will watch that the move of other rating agencies.

Currently Standard and Poor's has a BBB- rating on India since 2007 and stable outlook. It had upgraded India's sovereign rating to stable from negative in 2014, especially after Modi government came in power.

Fitch has kept its BBB- rating unchanged for 11 years on India, and retained stable outlook since 2013.

BBB- is one notch above Junk.

Bond Yield

The 10-year government bond yield reacted positively to Moody's upgrading India's sovereign rating, opening at 6.94 percent (12 basis points higher than previous year) on Friday but wiped out gains in last part of the session to close flat at 7.05 percent.

Experts expect the bond yield to hover around 7 percent in short term before it starts moving downwards to 6.6 percent.

In the coming quarter, yields may not see a major sell-off but could consolidate at higher levels in the range of 6.80-7.15 percent, Motilal Oswal feels while Kotak expects the benchmark 10-year yield to range from 6.9-7.1 percent for the remainder of Q3FY18.

"From foreign flows perspective in G-Sec debt segment, there is currently limited room as the G-Sec limits are mostly utilised. However, positive sentiments may help in utilisation of open SDL (state development loans) limits (Rs 25,200 crore) and the remaining general category limits in G-Sec (Rs 3,100 crore) and corporate bonds (Rs 4,000 crore). But we need to note that continued FPI equity inflows will keep alive the risks of further open market operations sales, implying higher supply pressure on bonds in the near term," Kotak reasoned.

However, the research house expects some respite to come in Q4FY18 as FPI limits in G-Sec bonds open up (around Rs 1,500 crore), helping the benchmark paper to move towards 6.8-7.0 percent.

"We do note that possible fiscal prudence with government sticking to FY2018 GFD/GDP at 3.2 percent (Kotak: 3.5 percent) and FY2019 at 3.0 percent could turn the tide further in favour of bonds. Alongside, a technical adjustment due to the introduction of a new benchmark 10-year paper could move the lower end of the range towards 6.6 percent in Q4FY18," Kotak said.

Macro Data

Consumer price index for rural and farm labourers for October will be released on November 20. Crude, refinery output for October and Mobile subscriber data for October will be announced during November 20-24.

Foreign exchange reserves for the week ended November 17 and bank loan growth & deposits growth for the week ended November 10 will be announced on Friday.

Stocks in Focus

Airline stocks - Jet Airways, SpiceJet and IndiGo (part of InterGlobe Aviation) - will be in focus on coming Monday, after the highest number of passengers carried in October for 2017.

For the first time, air travel volume breached the 1-crore mark in October, showing a healthy 20.52 percent growth over same month a year ago.

The carriers flew as much as 1.045 crore passengers in October 2017 against 86.72 lakh in October 2016, according to the data released by the regulator DGCA on Friday.

IndiGo retained its leadership position with 39.5 percent market share, followed by SpiceJet (13.1 percent) and Jet Airways (15.2 percent) while SpiceJet remained the leader in passenger load factor at 93.7 percent, followed by IndiGo (87.3 percent) and Jet Airways (80.5 percent).

Larsen & Toubro is expected to react positively on Monday as its subsidiary has bagged order worth Rs 8,650 crore to build Mumbai Trans Harbour link.

Reliance Communications will be in focus as Moody's has withdrawn its Ca Corporate Family rating & its negative outloo, and also the Ca rating on senior secured notes on Friday.

Logistics stocks (Allcargo Logistics, Patel Integrated, Snowman Logistics, Gati, Transport Corporation) will also be in focus on Monday as sources told CNBC-Awaaz that the sector will get infrastructure status. Finance Ministry has given the nod to give the logistics sector infrastructure status, which eases investment regulations in the logistics sector.

Three pharma stocks Divi’s Laboratories, Eris Life and Strides Shasun may trade higher on Monday.

Divi’s Laboratories has received an establishment inspection report from the US FDA for its unit-II at Visakhapatnam, with six observations.

Eris Lifesciences has entered into a definitive agreement to buy India branded generics business of Strides Shasun for an aggregate cash consideration of Rs 500 crore.

Private sector lenders IndusInd Bank and Yes Bank will be in focus as both will be added in BSE Sensex 30 on December 18 while drug makers Cipla and Lupin will be excluded from the index.

Buying may also be seen in Federal Bank, Grasim Industries, Vakrangee and Bajaj Holdings & Investment as these stocks will be added in BSE-100.

Earnings

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Corporate Action

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Technical Outlook

Experts said the Nifty did not break its support level of 10,100 in recent correction, so traders should not worry about the trend.

"The pattern clearly indicates that until the time Nifty does not break 10,100 one must not doubt the trend and buy at every opportunity. Let the fear of heights not get in the way," Kunal Saraogi, CEO at Equityrush.com said.

Arpit Jain, AVP at Arihant Capital Markets said the current price action on weekly chart has formed a candlestick pattern that resembles a bullish hammer. This suggests that momentum on the upside is likely to continue.

In coming week if Nifty trades and close above 10,336 level then it is likely to test 10,409–10,481-10,566 levels. However, if Nifty trades and closes below 10,231 level then it can test 10,158–10,085-10,000 levels, he feels.

Broadly, the undertone in the market has turned positive and any pull back in the range of 10,255–10,204–10,123 should be used to go long, with a stop loss of 10,066 for a target 10,400-10,600 levels in couple of weeks.

FIIs & DIIs flow and F&O Data

Foreign institutional investors bought nearly Rs 6,000 crore worth of shares and DIIs purchased Rs 3,451 crore worth of equities in the week gone by, due to stable September quarter earnings and Moody's India rating upgrade.

On Friday, maximum Call open interest (OI) of 59.98 lakh contracts was seen at strike price 10,500, which will act as a crucial resistance level for the index in the November series, followed by 10,400, which now holds 51.68 lakh contracts in open interest, and 10,600, which has accumulated 42.81 lakh contracts in OI.

Maximum Put OI of 48.77 lakh contracts was seen at strike price 10,000 which will act as a crucial base for the index in November series, followed by 10,200, which has accumulated 47.69 lakh contracts in open interest, and 10,300, which now holds 46.23 lakh contracts in open interest.

Crude Oil

The market will closely watch the movement in crude oil prices as India imports more than 80 percent of oil requirement.

Benchmark Brent crude oil futures settled at USD 62.72 a barrel, up nearly 2 percent, recovering ground after five sessions of losses while US light crude ended up 2.6 percent at USD 56.55 a barrel.

Investors majorly worried about the crude impact on fiscal deficit of the country.

Global Cues

Japanese trade balance data (imports and exports) will be announced on Monday.

US existing home sales data will be released on Tuesday while US durable goods orders, US unemployment claims, US crude oil inventories and US FOMC meeting minutes will be announced on Wednesday.

Europe's Manufacturing and Services PMI, and ECB Monetary Policy Meeting Minutes will be unveiled on Thursday.

Japan's Manufacturing PMI, and US Manufacturing and Services PMI data will be released on Friday.

US and Japanese markets will remain shut on Thursday for Thanksgiving Day.
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