The market is expected to continue to consolidate in the coming week as well
The market fell for the second consecutive week. But, overall, it remained in a consolidation mode last week and did not see major sell-off as it eagerly awaited the Union Budget FY20 scheduled to be held on July 5.
Sentiments were hit after DHFL's debt repayment default that pressured Yes Bank, as well as IndusInd Bank, due to their exposure to DHFL and more regulatory measures from the Reserve Bank of India (RBI) for NBFC space.
Meanwhile, source-based reports indicated that India decided to impose additional customs duties on 29 US products with effect from June 16. But, the decent IIP growth, stable inflation and falling crude oil prices limited downside.
The Sensex and Nifty50 slipped 0.4 percent each, but the broader markets underperformed with the Nifty Midcap index falling 1 percent and Smallcap index 2 percent. Among sectors, Nifty IT and Metal bucked the trend gaining a percent each while all other sectors ended lower.
The market is expected to continue to consolidate in the coming week as well. But, the focus would be on progress of monsoon, GST Council meet on the local front, experts said. In addition, three major central banks' meetings, as well as Federal Reserve's interest rate decision, will be closely watched.
"Markets are currently dancing to the global tunes and we do not see this changing any time soon, in absence of any major local trigger. Nifty could see further fall if it fails to hold 11,800 and the next crucial support will be at 11,650," Jayant Manglik, President - Retail Distribution, Religare Broking, told Moneycontrol.
Vinod Nair, Head of Research, Geojit Financial Services, also said the ripple effect from a weak global market, with premium valuation and slow economy, is hurting the market. "Continuous exchange of words between US and Tehran regarding the oil tanker attack, progress of US-China trade-war, fed policy outcome on 19th June and progress of monsoon will be closely watched by the investors," he said.
Manglik advises keeping positions on both sides while maintaining focus on stock selection.
Here are 10 key things that will keep traders busy this week:
US Fed meet
The two-day US Federal Reserve meeting scheduled to be held on June 18-19 would be a key event to watch out for in coming week.
Most experts expect the Federal Open Market Committee to keep interest rates unchanged in its policy meeting as it is expected to check a few data points like jobs growth and retail sales before taking any rate action. Investors will closely read its commentary to get a clue for likely rate cut later this year.
"In the light of the weaker-than-forecast economic growth, the cooling labour market, rising unemployment benefits and the mounting budget deficit, calls for a rate cut have increased," Jigar Trivedi, Research Analyst- Commodities Fundamental, Anand Rathi Shares & Stock Brokers, told Moneycontrol.
According to him, the odds of the Fed's dovish shock with a 25bp cut in rates next week are close to 33 percent as per CME’s Fed Watch tool.
Amit Gupta of ICICI Direct said any hints of dovish inclination would see further rising possibility of July interest rate cut.
Indian rupee fell by 33 paise to end the week at 69.80 against the US dollar tracking the weakness in Chinese Yuan, as well as the strength in greenback. Rising crude oil prices and an intense sell-off in equities also put pressure on the currency.
The currency is expected to be volatile in the coming week as all eyes are on Federal Reserve Policy meeting, experts said, adding the greenback also would likely be choppy.
"USDINR has near term support at 69.60 levels below which the pair could decline till 69.10 levels while on the higher side the pair is likely to face resistance near 70.20 level," Amit Gupta said.
Crude oil price
The oil price increased by a percent on June 14 amid concerns over potential supply disruptions after attacks on oil tankers in the Gulf of Oman last week. But, the week ended with a loss of 2 percent amid global demand worries due to trade disputes between world's largest economies, China and the US.
Brent crude futures, the international benchmark for oil prices, closed at $62.01 a barrel on June 14.
"Great volatility is expected in crude oil ahead of OPEC's meet in Vienna in the last week this month. Any unpredictable development in US-China trade relations may dampen sentiment for oil," Jigar Trivedi said.
In a monthly report, OPEC said that international trade tensions were hurting the demand for oil, slashing its earlier estimates of consumption and predicting further challenges ahead. The Organization is due to meet in the coming weeks to set production levels for the second half of the year. Meanwhile, the Saudi Arabian energy minister said he was confident that OPEC would extend output cuts into H2 after holding talks with Russia.
The Union Budget FY20 is expected to remain a key event for the coming weeks as, given the range-bound move after the rally during election results, the market seems to be hopeful that new Finance Minister Nirmala Sitharaman will announce strong measures that will bring economic growth on track and revive consumption.
Along with that, the fiscal discipline and higher allocation to key sectors would be closely watched.
"No doubt, efforts were made to enhance growth, yet economy demands much at this time. Thus, we hope that in the upcoming Budget, consumption uplift could be the Finance Ministry priority. Indeed government should provide a stimulus package altogether as economy booster. As government is also aware of the slowdown that is witnessed in the economy which now calls for the required revamp & business friendly policy, being priority for economic growth," Manali Bhatia, Senior Research Analyst at Rudra Shares & Stock Brokers, told Moneycontrol.
She said maintaining fiscal deficit and, at the same time, higher allocation to different sectors are watchable. "If the government is able to keep a balance amongst the two, it could be a major economic bolster," she added.
GST Council meet
Another event that will be keenly watched by the Street would be the GST Council meeting, which will be held on June 20.
The Council is expected to take the final decision on the turnover threshold for the issuance of e-invoice for business-to-business (B2B) sales after consultation with states.
"The turnover threshold for entities to generate e-invoice for B2B sales is likely to be fixed at Rs 50 crore if the GST Council agrees. With this threshold, big taxpayers who are better placed technologically to integrate their software would have to generate e-invoice for B2B sales," the official told PTI.
An analysis of the return filing shows that as many as 68,041 businesses have reported a turnover of over Rs 50 crore and accounted for 66.6 percent of total GST paid in 2017-18.
With e-invoice generation, entities with turnover above Rs 50 crore would be saved from the twin activities of filing returns and uploading invoices. From the government's side, this would help in curbing invoice misuse and tax evasion.
The Current Account Balance for the quarter ended in March will be announced on June 17.
The minutes of the Monetary Policy meeting held on June 6 will be released on June 20 while the Foreign Exchange Reserve data for the week that ended on June 14, and Deposit & Bank Loan growth for fortnight that ended on June 7 will be declared on June 21.
The Nifty50 failed to hold 11,900 levels in the week gone by, forming a bearish candle on daily as well as weekly charts and remained restricted within the previous week's High-Low range, indicating a lack of strength on either side.
"Since past three-four weeks index is consolidating within broad range of 12,050-11,800 levels representing short term sideways trend. Hence any either side breakout will indicating further direction," Rajesh Palviya, Head Technical & Derivatives Research, Axis Securities, told Moneycontrol.
According to him, the chart pattern suggests that, if Nifty crosses and sustains above 11,900 levels, it will witness buying which will lead the index towards 12,000-12,100 levels. If the index breaks below 11,750 level, it will witness selling which will take the index towards 11,650-11,570.
For the week, he expects Nifty to trade in the range of 11,950-11,600 with a negative bias.
On the Options front, the maximum Call open interest (OI) was seen at the 12,000 strike, followed by 12,500 and 12,200 strikes which are noteworthy resistance while the maximum Put open interest was seen at 11,500 strike, followed by 11,800 and 11,700 strikes, which are noteworthy supports.
A significant Call writing was seen at 11,900 strike, followed by 12,100 and 12,000 strikes while Put unwinding was seen at 11,800 strike, followed by 11,700 strike.
"Call writers have been active at 12,000 strike, which remains a hurdle for June series. Nifty premium has reduced indicating some long closure in the index. Certain index heavyweights have seen writing in near the money Call strikes suggesting limited upsides in the current series," Amit Gupta of ICICI Direct said.
Volatility has declined for a major part of the last week, which has happened on account of Call options writing that may keep the markets subdued, he added. "Selling pressure may emerge below 11,800 in the market, which will drag the Nifty towards 11,650."
India VIX fell 6.48 percent to 13.8950 during the week.