10 key things that will keep traders busy this truncated week

The market snapped from its two-week losing streak and posted its highest weekly gains in the last three months, driven by domestic and global cues.

Investors turned confident after the government came the to fore to revive sentiment and boost the economy by withdrawing additional FPI surcharge, ensuring timely GST refunds, PSU banks merger etc, and also the easing of US-China trade tensions.

The BSE Sensex rallied 631.63 points, or 1.72 percent to 37,332.79 and the Nifty50 climbed 193.90 points or 1.79 percent to 11,023.25 for the week that ended on August 30, driven by banking and financials, FMCG, technology and infra stocks.

The broader markets outpaced the frontliners, with the Nifty Midcap index rising nearly 2 percent, and the smallcap index rallying close to 4 percent amid strong DII flows and reduction in FII selling.

Given the government's strong intent to revive the economy and achieve $5 trillion target by 2024, and considering the positive global cues, bulls seem to be in better position than before and as a result, the sentiment is expected to remain positive but due to a lack of major domestic triggers, the market may remain rangebound in coming truncated week and could be largely driven by global cues, experts feel.

"Inherently, the markets seem to be stabilising, although bulls and bears are equally poised in terms of their strength, but given the beginning of a new expiry, bulls should have had an upper hand as majority of the weak hands are out of the market and bears could run for the cover, incase the government or other factors improve the sentiments of the market," Jimeet Modi, Founder and CEO, SAMCO Securities and StockNote told Moneycontrol.

The market on September 3 will first react to GDP data and outcome of the FM conference held post-market on August 30.

Ajit Mishra, Vice President - Research at Religare Broking reiterated his positive yet cautious view on the markets and suggests focusing on stock selection.

"Trade disputes, currency movements and FII flows could be the prime driver for the markets in the coming weeks," Sanjeev Zarbade, VP PCG Research at Kotak Securities said, adding for good returns, investors who can withstand the near term volatility should consider buying small/midcaps with a 2-3 year timeframe.

The equity market will remain shut on September 2 for Ganesh Chaturthi.

Here are 10 key things that will keep traders busy this truncated week:

PSU banks

Not only the market, but the banking sector, as a whole, will also react positively on September 3 after the government finally announced the merger of 10 banks into 4 in order to improve their balance sheets, make strong compared to private banks. As a result total count of PSU banks will be reduced to 12 from 27 in 2017.

It is also one of steps towards making Indian economy stronger. On top of that there is also a capital infusion of Rs 55,250 crore for strengthening banks and increase credit.

"It gives a positive signal that the government is not just focusing on recapitalizing the bank, but also in improving the governance in the public sector banks (PSBs). Measures are being taken to improve the efficiency of the PSBs is in the right direction as they are competing with the private sector," Deepthi Mathews, Economist at Geojit Financial Services told Moneycontrol.

Auto Stocks

Auto stocks including Maruti Suzuki, Tata Motors, Eicher Motors, Hero MotoCorp, M&M etc will be in focus on September 3 as auto sales for August will be released on September 1. Expectations for August sales remained subdued due to weak demand, BS-VI transition, higher purchasing cost, push for electric vehicles, US-China trade war, ban on diesel cars in Europe etc.

But the auto industry is hopeful for a recovery in the upcoming festive season, especially after the government came up with certain relaxations and promises to help revive the sector from an unprecedented slowdown.

The deferral of the proposed increase in the registration fee for passenger vehicles to June 2020, acceleration in depreciation rates, a promise to make auto loans cheaper and the reduction in repo rates (to 5.4 percent) to the lowest in nine years would could benefit the sales.

After the double digit fall in July automobile sales, Kotak expects the weakness in  sales volume to continue in August 2019. Maruti Suzuki sales in August may fall 28 percent YoY, M&M Auto 16 percent, Tata Motors 24 percent, Hero 11 percent, Bajaj Auto 8.5 percent, TVS Motor 12 percent, Eicher Motors 11 percent and Ashok Leyland 26 percent, according to Kotak Institutional Equities.

Reaction to GDP

The market on September 3 is expected to react negatively to GDP growth that slumped lower than its 6-year low at 5 percent in the June quarter 2019, as against a 8 percent in the year-ago period due to slowdown in manufacturing, muted auto sales and construction activity.

As a result, most analysts cut down their full year growth forecast, though they are hopeful for a recovery in the second half of FY20.

"The continuation of the slowdown in GDP growth was expected, but the 5 percent growth in Q1 is worse than expected. But GDP growth figures will pick up in Q3 and Q4, benefitting from the low base of the previous financial year. Also, the rate cuts by the RBI will act strongly in Q3 and Q4 since monetary policy impacts with a lag of 2 to 3 quarters. We need structural reforms like labour and land market reforms to stimulate and sustain growth," VK Vijayakumar Chief Investment Strategist at Geojit Financial Services told Moneycontrol.

Deutsche Bank reduced its FY20 GDP growth estimate to 6.3 percent, down  from 7 percent earlier and expects the RBI to cut the repo rate by 25 bps in October policy against its expectation of 15 bps earlier. "We see terminal repo rate falling to 4.75 percent against our earlier forecast of 5 percent," the global brokerage said.

US-China trade war, Crude oil price and Gold

The market heaved a sigh of relief as hope for the resolution to the ongoing trade worries between world's largest economies US and China emerged. This was especially after Beijing indicated that it would not retaliate against the recent US tariffs increase on $300 billion worth of Chinese goods,  which showed a keen interest to resume talks with America to resolve trade war.

The talks between teams from China and the United States continued and both sides will meet in September again, which is a key thing to watch out for in coming days, but US President Donald Trump strongly said the recent increase in tariff on Chinese goods would remain as per schedule on September 1.

So far since the beginning of trade war in 2018, US imposed tariffs on more than $250 billion worth of Chinese goods, which as a result threatened global economic growth and hit corporate profits in both countries.

Crude oil prices fell below $60 a barrel, but remained favourable for India and played quite a supportive role in the last many sessions, but they are expected to remain firm in the coming week, following a drop in US oil inventory and a looming hurricane in Florida along with optimism over US-China trade talks.

"Brent crude, the international benchmark for oil prices, may find support near 58.20 - 57.60 levels, while an important resistance can be seen around 61-61.50 levels. We expect oil to trade in a range of 57.60-61.50 with a positive trend," Abhishek Bansal, Chairman at Abans Group said.

The prices of gold, the safe heaven asset, remained above $1,500 an ounce and posted gains for fourth consecutive month in August. Prices are expected to remain on higher side amid global slowdown, US-China trade war and dovish policies by several Central Banks.

"US-China trade war and dovish central bank policy to lower interest rate could keep gold prices higher for the short to medium term; we can see a fresh rally towards $1,600-$1,620 levels in the near term as long counter maintains above key support levels of $1,501," Bansal said.

Rupee and FII Flow

The Indian rupee hit fresh 2019 lows of 72.25 against the US dollar, but ended the week higher by 26 paise to 71.40 a dollar amid easing US-China trade tensions and the rally in equity market.

It was the first weekly gain in the last eight straight weeks. The currency weakened by 4.7 percent to 71.66 on August 23, from 68.42 closing levels on July 5, the Budget day when government proposed imposition of additional surcharge on the super-rich, including the FPI trusts.

But experts expect the rupee to depreciate further in the coming weeks and move towards its record high levels of 74.44 as seen in October 2018 due to global factors, though the government's initiative to improve economy and RBI's rate cut may provide support.

"The Indian rupee may depreciate further towards 72.30-73 levels in the short term with a key support level of 71.30. The trade war is turning out to be a currency war and emerging market countries want to support their exports," Bansal said.

Apart from global slowdown fears and devaluation of Chinese yuan, the consistent FII outflow also caused rupee weakness. FIIs net sold more than Rs 31,000 crore in July and August, though the velocity of outflow reduced in last few sessions due to the government's initiative towards improving the economy. However, domestic institutional investors continued to support the market by pouring in equal or more than FII outflow in last several months.

Technical view

The Nifty50 stabilised after two-week losses and gained 1.8 percent to close the week above psychological 11,000 levels, forming a Spinning Top kind of pattern on daily charts, which suggests indecisiveness on the part of both bulls and bears.

The market is expected to remain in a consolidation mode and the sharp rally is likely only if the index breaks 11,180, the near-term hurdle, experts feel.

"It is expected to oscillate in the range of 11,190 on the upper side and 10,800 on the lower side. However, 11,350 levels would be good resistance to cap the market, but markets in general are expected to remain sideways in the coming week therefore, traders should refrain from taking aggressive positions," Jimeet Modi, Founder and CEO, SAMCO Securities and StockNote said.

F&O Cues

Option data also suggests the Nifty may consolidate and could remain in the broader trading range of 10,700 to 11,300 levels in coming sessions.

Maximum Put open interest was seen at 10,800 strike, followed by 11,000 and 10,600 strikes while maximum Call open interest was seen at 11,700 followed by 11,200 and 11,500 strikes. Meaningful Put writing was seen at 10,800 and 10,500 strikes, while Call writing was seen at 11,600 followed by 11,500 and 11,000 strikes.

"The Nifty is expected to consolidate in coming months. The index has picked up some strength since the central government has come out with some initiatives to boost the economy. However, the recent rollover of short positions would keep the pressure intact at higher levels," Amit Gupta of ICICI direct said.

Macro Data

On the economic data front, Markit Manufacturing and Services PMI for August will be released on September 2 and September 4 respectively.

Foreign exchange reserves data for the week that ended on August 30 will be announced on September 6. In the earlier week, forex reserves fell below $430-billion-mark, down by $1.45 billion.

Corporate Action

Here are corporate actions taking place in coming week:

Global cues

Here are global data points to watch out for in coming week: