Range-bound trade is expected to continue in coming sessions as we move closer to the Union Budget
Friday's sell-off dragged the market for the third consecutive week ended June 21 as bears retained control over Dalal Street.
Geopolitical tensions between the US and Iran that lifted crude oil prices, delayed monsoon, RBI's worries over growth slowdown and sharp correction in debt-laden companies, as well as its lenders, dented traders sentiment.
The bigger carnage due to debt crisis was seen in smallcaps as the Nifty Smallcap index fell 2.4 percent, while the Nifty Midcap index declined 0.87 percent.
Sensex slipped 257.58 points or 0.65 percent to 39,194.49 and the Nifty50 dropped 99.20 points or 0.84 percent to 11,724.10, taking the total loss for three straight weeks to 1.3 percent and 1.7 percent respectively.
This loss-cum-consolidation was largely on expected lines especially after a one-way rally of 9 percent during election results and slowdown & debt crisis.
Hence the range-bound trade is expected to continue in coming sessions as we move closer to the Union Budget and this volatility is likely to be driven by global factors and speculation on Budget expectations, experts said.
"Next week, markets will start speculating on the outcome of budget policies which is usually magnified more by media, but stocks may not really swing in the same manner. International factors may affect domestic markets and any confrontational stance in the Middle East would be a dampener for equity markets," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.
He advised investors and traders to maintain the status quo and avoid volatile sectors such as airlines, NBFCs and other debt-laden companies.
Jayant Manglik, President - Retail Distribution, Religare Broking said lingering trade war scenario and geopolitical tension are not going to fade away soon. "Hence traders have no option but to prefer hedged positions and let the markets settle down."
FIIs were net sellers to the tune of around Rs 1,300 crore during the week and in June, so far, they are net sellers to the tune of around Rs 800 crore. However, DIIs bought nearly Rs 2,000 crore during the month.
Here are 10 key things that will keep traders busy this week:
Traders will close their derivative positions for June series and roll over to next month contracts in the coming week, which could bring more volatility to the market.
Maximum Put open interest (OI) is at 11,700 (which could act as a support level) followed by 11,500 and 11,600 strikes while maximum Call OI is at 12,000 (which could act as a strong resistance) followed by 11,800 and 11,900 strikes.
Meaningful Call writing was seen at 12,000 followed by 11,800 & 11,900 strikes while minor Put writing was seen at 11,650 followed by 11,500 strikes.
Option data suggests an immediate trading range in between 11,600 to 11,900 zones, experts said.
"The Nifty has been consolidating around 2018 high of 11,750. This is expected to continue till June expiry. Writing was seen in OTM Call and Put options, which should keep the Nifty within a range," Amit Gupta of ICICI Direct said, adding mo major surge in volatility has restricted the downsides in the market.
India VIX moved up by 5.11 percent from 13.90 to 14.61 levels in the last week and moved higher after the decline of last four weeks.
On the domestic front, the steep fall in shares of companies which are either cash-strapped, have exposure to debt-laden firms or have high pledged ruined confidence among traders, which reflected in stocks like Jet Airways, Jain Irrigation, Yes Bank among others.
The approach towards such stocks is expected to remain subdued but the focus would remain on quality stocks including very few select cash-strapped companies which have strong fundamentals as debt crisis is coming to end soon, experts said.
"NBFCs are likely at the end of the capitulation stage atleast for now. The famous Piramal Enterprises had to sell their stake in Shriram Transport which speaks a lot about how the NBFC space is undergoing crises. Nonetheless, when such transactions happen it also gives an indication that the culmination of pain is at its peak. Just like investors sell shares at the bottom, similarly, corporates too sell assets at or near the bottoms," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote said.
The key thing to watch out for would be meeting between US President Donald Trump and China's President Xi Jinping over the ongoing trade war, in the two-day G-20 Summit scheduled for June 28-29 at the International Exhibition Center in Osaka, Japan.
In the past, talks have failed, this time too globally investors are hopeful for some resolution in the G-20 meet but that looks a bit uncertain, experts said.
"Trump and his Chinese counterpart, Xi, will meet at the G-20 raises hopes that the trade dispute between the US and China will be resolved. However, Trump's nature is quite uncertain and ambiguous. This is a matter of concern for the market. Trump has launched a 2020 re-election bid. Hence, he would be more uncertain and vocal about key issues, mainly about trade matters. This would hurt the global economy," Rushabh Maru, Research Analyst - Currency and Commodity at Anand Rathi Shares and Stock Brokers told Moneycontrol.
The Indian rupee gained 23 paise during the week to end at Rs 69.57 on likely FII inflow after dovish monetary policy from Fed & ECB. Although it fell 14 paise against US dollar on June 22 due to escalated US-Iran tensions which lifted crude oil prices.
Overall it remained in a range of 69-70 to the dollar for last three months and that consolidation is expected to continue in coming sessions amid volatility in crude oil prices and ahead of Union Budget, experts said.
"Cool off in oil prices is likely to help rupee appreciate against USD. July series options positioning suggest a tight range for USDINR in short term. Level of 69.50 has higher Put OI and 70.0 has highest Call OI concentration," Amit Gupta said.
Crude Oil Price
Global benchmark Brent crude futures rallied 5 percent to over $65 a barrel during the week on fears that any US military attack on Iran would disrupt supply from the Middle East.
However, the prices may correct a bit in coming week after US President Donald Trump backtracked on Iran military strike on June 21, but could overall remain rangebound ahead of OPEC meeting which rescheduled on July 1 & 2. Any geopolitical tensions in the Middle East will be closely watched, experts said, adding fundamentals are bearish for crude oil amid global growth concerns due to trade tensions.
Earlier OPEC cut its global crude-oil-demand forecast for 2019 due to the trade disputes, while US crude oil production continues to increase rapidly.
At present, OPEC and its allies have a deal to cut crude oil output by 1.2 million bpd from January 1. The current deal expires on June 30.
"Saudi Arabia assured markets that it, along with its allies, will continue to work toward oil-market stability. Hence, we believe that OPEC will extend its production-cut deal till end-2019 despite much disagreement among the allies," Rushabh Maru of Anand Rathi Shares and Stock Brokers said.
The movement in gold, which climbed over $1,400 an ounce for first time in nearly six years on Friday, will also be closely watched though it will not have any major impact on the equity market.
The rally in last few weeks after the US hinted at rate cuts, Middle East tensions and likely global growth slowdown, indicated that investors are moving for a safe haven.
Gold usually trades higher during times of economic or political uncertainties. The rising risk of war in the Middle East escalated gold's safe-haven appeal.
"The on-going US-China trade frictions likely to put more strain on the global economy which continue to support gold’s safe-haven appeal. A volatile dollar worries over US Fed's policy decisions and the on-going tensions in the Middle East are likely to keep the sentiments higher," Hareesh V, Head of Commodity Research at Geojit Financial Services told Moneycontrol.
The Nifty formed 'Bearish Belt Hold' kind of pattern on the daily scale on June 21 and a bearish candle for third consecutive week, which indicated that bears are restricting its upside momentum.
The index has recently taken multiple support near 50 DEMA at 11,650 zone but the absence of buying interest is also visible at 11,850 zone.
Nifty is trading below its 20-day SMA's which are important short term moving average, indicating negative bias in the short term, experts said.
"The weekly strength indicator RSI and momentum oscillator Stochastic have both turned negative and are below their respective reference lines indicating negative bias," Rajesh Palviya, Head Technical & Derivatives Research, Axis Securities told Moneycontrol.
He said the chart pattern suggests that if Nifty breaks below 11,600 level it would witness selling which would take the index towards 11,500-11,430, however, if index crosses and sustains above 11,850 levels it would witness buying which would lead the index towards 11,970-12,100 levels.
Infrastructure Output and Government Budget Value for May will be released on June 28 (Friday).
Current Account Deficit and External Debt for the quarter ended March 2019 will also be announced on the same day. Foreign exchange reserves for week ended June 21, too, will be released on Friday.
Here are the corporate actions that will happen in the coming week:
Apart from US-China trade and US-Iran tensions, other data points to watch out for in the coming week would be: