Bulls retained charge on Dalal Street for third consecutive week that ended May 31 on hopes that the new Cabinet formed by the Narendra Modi government will take strong measures to revive economy, ease liquidity concerns and create jobs, etc.
The BSE Sensex as well as Nifty50 gained 0.7 percent, driven by technology, private banks and energy stocks. The Nifty Midcap index outperformed frontliners, rising 1.5 percent.
The rally for the third consecutive week, a mild correction on May 31 after the cabinet portfolio allocation, and trade war worries indicated that the market could be rangebound in coming truncated week and further correction cannot be ruled out, experts said, adding that the Monetary Policy Committee's interest rate decision on June 6 will be closely watched, and if any rate cut are announced beyond street expectations, there could be some rally.
Globally, the key thing to watch out for would be developments over trade tensions.
"We expect the markets to be rangebound and news driven in the next week. With enthusiasm over the BJP's majority win having subsided, the markets would track the macros and global cues. Next week’s RBI’s monetary policy outcome will dictate further market trends in the coming sessions," Jayant Manglik, President at Religare Broking told Moneycontrol.
With indices likely to exhibit high volatility in the coming week, investing in quality large/mid/small caps in a phased manner would be a prudent approach, he advised.
But on coming May 27, first the market may react to weak GDP growth, which plunged to 20-quarter low to 5.8 percent in Q4 FY19 and a sharp fall in US markets on May 31, amid fresh trade worries between the US and Mexico.
Here are 10 key things that would keep traders busy this week:
RBI Interest Rate Decision
The Monetary Policy Committee meeting and its decision on interest rates would be the key factor to watch out for in coming week.
The GDP growth slowdown, the falling yields and rising bond prices indicated that there could be a rate cut in a policy meeting scheduled to be held between June 3, 4 and 6, experts said, but some experts also feel the central bank will closely watch monsoon progress and inflation levels before a possible rate cut.
Jayant Manglik said that after a thumping victory by the BJP led NDA government, hopes among participants definitely increased for a rate cut in the upcoming policy meet.
However, he believes that the RBI would await more data on monsoon progress and inflation and meanwhile, the focus of the MPC would be to ensure that the recent rate cuts are passed on by the banks.
Jimeet Modi, Founder and CEO, SAMCO Securities and StockNote said if any rate cut announces in a policy meeting, whether this is sufficient to revive the ground level slowdown in the economy is the real question.
Trade War Tensions
Globally, trade war tension seems to be endless as worried investors and fund managers started taking money off the table in several equity markets in last week after several talks between US and China failed to arrive at amicable solution for trade.
In retaliation to the US raising punitive tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent after Sino-US trade talks in Washington ended without a deal in May, China also raised tariffs to maximum 25 percent on $60 billion worth of US products on June 1.
In addition, the US President Donald Trump on May 30 said the US would impose a 5 percent tariff on all Mexican imports from June 10, which will gradually increase until illegal immigration across the Southern border stopped from Mexico.
If the trade war continues, then the fear of a recession in the US, and a global economic slowdown could increase, which could result in a steep correction across global markets and the demand for safe havens may increase, experts said.
"The market participants would closely monitor the trade developments between the US and China in the upcoming G20 summit in Japan. Further, the US president threatening the imposition of a 5 percent tariff on imported goods from Mexico also sparked fresh concerns over global economic slowdown," Jayant Manglik said.
Oil Prices
Brent crude futures, the international benchmark for oil prices, fell sharply to around $62 a barrel, down from $70 a barrel last week after fresh trade worries between US and Mexico, which is a trade partner to the US and a major crude oil supplier, which can dent global economy.
Any fall in oil prices is always welcome in India as the country imports around 85 percent of its requirement. The fiscal deficit of the country will be controlled and companies which are dependent oil prices may react positively as earnings will improve.
Hence, oil price would be closely watched in coming sessions.
Auto Stocks
On June 3, auto stocks as well as the market will react to the weak sales data from domestic companies in May. Maruti Suzuki reported a 22 percent YoY drop in sales, Royal Enfield 16.5 percent and Mahindra & Mahindra at 3 percent.
Among others, Atul Auto also showed a 13 percent decline in May sales, SML Isuzu 17 percent, Escorts at 18 percent and Eicher Motors VECV 37.6 percent drop in sales YoY.
Macro Data
Nikkei Manufacturing PMI data for May will be released on June 3 and Nikkei Services PMI data for May on June 5.
The data for Foreign Exchange Reserve for week that ended on May 31, and deposits and bank loan growth for fortnight that ended May 24 will be announced on June 7.
Union Budget Expectations
After taking charge by Modi 2.0 cabinet, the government declared the date for the Union Budget to be on July 5.
Budget 2019 will be presented by newly-appointed Finance Minister Nirmala Sitharaman, who is going to deal with lot of issues that is hurting economic growth for many quarters.
As the Budget is around a month away from now, expectations will start building up and the key thing to watch out for would be programmes which are likely to be undertaken in second term by Modi government.
The Budget Session of Parliament will be held from June 17-July 26, while the Economic Survey will be presented on July 4.
The Cabinet has extended the Kisan Yojana, thus fulfilling PM Modi's poll promise. The Modi 2.0 government approved a proposal to extend the benefit of Rs 6,000 per year under the PM-KISAN scheme to all farmers in the country.
Technical Outlook
The Nifty50 closed marginally lower on May 31, forming bearish candle on daily charts and gained 0.7 percent for the week to end at 11,922, forming small bullish candle on weekly scale.
Given the RBI monetary policy and ongoing trade war tensions, technically the market is also expected to be rangebound and small corrections can't be ruled out in coming week, experts said, adding 12,041 (the record high) could be strong hurdle on the upside while 11,500 would continue to be strong support.
"Volatility is likely to remain high in the coming week on account of the RBI Monetary policy and truncated week. Despite volatility, we do not foresee the Nifty to breach the major support area of 11,600, so any dips should be used as an incremental buying opportunity," Dharmesh Shah, Head – Technical, ICICI direct told Moneycontrol.
According to him, the index is expected to resolve above its last two weeks high (12,041) and head towards earmarked target of 12,200 in coming weeks as it is 138.2 percent external retracement of previous decline (11,856-11,108).
F&O Cues
On the options front, maximum Put open interest (OI) is at 11,500 followed by 11,000 strike while maximum Call OI is at 12,500 followed by 12,000 strike.
Put writing is at 11,500 and 11,700 strikes while Call writing is at 12,200 and 12,400 strikes.
"Option data suggests an wider trading range in between 11,550 to 12,250 zones," Chandan Taparia of Motilal Oswal said.
In the last two weeks volatility dropped sharply from recent highs of 30 to 16 zones post the Election outcome and stable volatility suggests that any small decline could be bought in the market, he added.
India VIX fell by 2.43 percent in the last week from 16.47 to 16.07 levels.
Corporate Action
Global Cues
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