Ajit Mishra of Religare Broking advised keeping extra caution in stock selection and focusing more on risk management aspects.
The first day of August series broke the six-day losing streak on the D-Street but was insufficient to put bears on backfoot on weekly basis. The market fell for the third consecutive week, losing 1.2 percent in the week ended July 26 dragged by banking & financials, energy, infra and metal stocks.
The FII sentiment, which was already weakened after Nirmala Sitharaman ruled out changes in surcharge on super-rich, worsened due to tepid June quarter corporate earnings and economic slowdown. As a result, FIIs were net sellers during the week to the tune of more than Rs 7,000 crore, taking the total sales by FII to over Rs 15,000 so far in July, according to data available on Moneycontrol.
However, net purchased by domestic institutional investors supported the market as they bought similar amount so far in the month.
The BSE Sensex closed below psychological 38,000 level and Nifty50 remained at 11,300 mark, both losing more than 4 percent in three straight weeks.
The underperformance was more on the broader front as the Nifty Midcap index lost 1.6 percent and Smallcap index shed 2.5 percent for the week, taking a total three-week loss to 8 percent each.
Pull back seen on last Friday can be extended initially, but given the dismal earnings performance and consistent FII selling, the market sentiment may remain weak and there could be another rangebound trade in the coming week. Traders will closely watch FOMC meet outcome scheduled on Wednesday late night ahead of RBI policy, experts feel.
"In absence of any major trigger, we advise keeping close watch on earnings and global markets for further cues. Nifty may extend this rebound ahead also but upside also seems capped," Ajit Mishra Vice President, Research at Religare Broking told Moneycontrol.
He advised keeping extra cautious in stock selection and focusing more on risk management aspects.
Mustafa Nadeem, CEO at Epic Research also believes this is a time for caution rather than being aggressive and going out with a shopping bag. "It is now only select few stocks that need to be handpicked at this point of time. The Nifty index may consolidate between 11,200-11,450 in the short term," he said.
On Monday, the market will first react to ICICI Bank earnings which were quite strong with 27 percent growth in NII and 15 percent in loan book, and asset quality improved as NPA declined.
Here are 10 key things that will keep traders busy this week:
Apart from FOMC policy meet, monsoon progress and geopolitical tensions, the key factor to watch out in coming week would be corporate earnings.
Except for few companies, earnings announced so far are much lower than expectations, with a dismal performance from auto, FMCG and banking & financials sector.
"We believe the sentiments may remain negative. HUL has seen growth slowing to almost 7 quarters low. The auto companies are already in a bad shape and we believe this may continue for September quarter as well until demand picks up in its season. The topline for many companies have not been good and only financials are able to report better number but with increased provisioning and reduced NIMs," Mustafa Nadeem said.
As we are in the middle of the June quarter corporate earnings season, around 400 companies will announce their quarterly numbers in coming week including State Bank of India, Axis Bank, ITC, HDFC, Dr Reddy's Laboratories, Tech Mahindra, Hero MotoCorp, Eicher Motors, IOC, UPL, Bharti Airtel and Power Grid among Nifty50 stocks.
Among others, Bank of India, Ashok Leyland, DLF, Bank of Maharashtra, General Insurance Corporation, Bharat Electronics, Sun Pharma Advanced Research Company, Alembic Pharma, Piramal Enterprises, Kalpataru Power Transmission, VIP Industries, PNB Housing Finance, Dish TV, Symphony, Allahabad Bank, Apollo Tyres, IndiaMart, Petronet LNG, Tata Global, Tata Power, Godrej Consumer Products, Marico, Ujjivan Financial, IRB Infra, Bata India, Union Bank of India, HUDCO, LIC Housing Finance, Corporation Bank etc will also release their June quarter earnings.
Country's largest lender SBI is expected to report a healthy profit in the June quarter on lower provisioning, and higher treasury income & loan growth, with asset quality improvement, brokerages feel. The bank will announce its quarterly earnings on August 2.
Among brokerages considered, the minimum amount of profit is expected to be around Rs 2,500 crore, while the maximum is estimated to be Rs 6,000 crore for the quarter. In the corresponding quarter of the last fiscal, SBI posted a loss of Rs 4,875.9 crore.
According to brokerages, loan and NII growth could be in double digits with lower slippages, but other income or non-interest income may be quite strong.
"We expect loan growth of 17 percent YoY, led by growth in retail books and portfolio buyouts. NII is expected to increase by 10 percent YoY due to lower interest reversals and better recoveries from w/off accounts. Non-interest income is expected to remain strong at 38 percent YoY on account of an improvement in the treasury performance and fee income," Motilal Oswal said, adding stress addition is likely to moderate to 1.7 percent levels, as it believes that most of the stress has been recorded in previous quarters.
ITC, which will also release numbers on August 2, is likely to show double-digit growth year-on-year in revenue as well as profit in the quarter ended June 2019 backed by cigarette business, according to the brokerages.
Cigarette volume growth could be around 5.5-6 percent in Q1FY20 on lower base of 1.5 percent growth in the year-ago. The volume growth in March quarter was 7.5 percent.
"We model 5.5 percent YoY increase in cigarette volumes and 3 percent increase in realization (portfolio level). We forecast 11 percent YoY growth in cigarette EBIT," Kotak said.
"We model 9 percent, 15 percent and 10 percent YoY growth in FMCG, hotels and agri-business. Expect strong margin expansion for these segments as well (except hotels where margins would be impacted as gestation costs of the new Kolkata property kick in)," it added.
All eyes are on Axis Bank now among private lenders after ICICI Bank reported healthy numbers with improved asset quality and HDFC Bank delivered stable growth (despite a little concern over asset quality ahead).
Most brokerages expect more than two-fold increase in Q1FY20 profit on lower provisioning & stable operational income YoY, and around 15 percent growth in NII as well as loan book compared to year-ago, with stable asset quality.
"Traction in advances is seen improving 15 percent YoY to led by focus on high yielding retail & MSME loans. Decline in G-Sec yield is expected to aid trading income leading to positive impact on PAT. PAT is seen at Rs 1,725 crore on the back of a stable operational performance & lower provisions," ICICI direct said.
With no material exposure towards IL&FS, ADAG group, DHFL, etc. slippages are seen lower leading to lower credit cost of 46 bps; and asset quality is expected to largely remain stable with GNPA ratio at 5.2 percent, it added.
Another important event to watch out for would be the Federal Open Market Committee's two-day policy meeting that concludes on July 31.
Globally analysts mostly expect Federal Reserve to cut interest rate by at least 25 bps to help the economy grow in the face of trade wars and slowing growth.
US GDP growth in Q2CY19 was 2.1 percent, higher than street estimates but there was some clear impact of tariffs and trade friction.
"Investors are now largely tracking the US FOMC policy decision at the meeting scheduled at the end of July. Dovish comments from the US Federal Reserve reinforced bets on the US central bank could cut interest rates by as much as half a percentage in the next meeting," Hareesh V Head - Commodity Research at Geojit Financial Services.
The data for government budget value and infrastructure output for the month of June will be released on July 31 while Markit Manufacturing PMI numbers for July will be declared on August 1.
On August 2, bank loan and deposits growth for the fortnight ended July 19, and foreign exchange reserves data for week ended July 26 will be released.
Nifty50 recovered on July 26 to close marginally higher, resulting in the formation of a small bullish candle on the daily scale for the first time after bearish candles formed in the previous six consecutive sessions.
Hence the pull back rally could be extended in the coming session, but confirmation of same is possible only if the index closes decisively above 11,350 level because overall sentiment still remains in favour of bears as it formed bearish candle for three consecutive weeks, experts feel.
"The index has formed a big body bearish candlestick pattern on the weekly timeframe which implies bearishness to continue unless we see a close above previous week's high placed around 11,398 marks. In the absence of major domestic and global triggers, selling pressure could continue in the coming sessions towards 200 DMA standing around 11,130 level and lower towards the line of parity & strong psychological mark of 11,000," Shabbir Kayyumi, Head of Technical & Derivative Research at Narnolia Financial Advisors told Moneycontrol.
He also said the majority of the momentum oscillators are in oversold zone and the possibility of some bounce back from lower levels in coming sessions cannot be ruled out.
The August series started on a positive note on July 26 after seeing 4 percent correction in the previous six consecutive days.
On the Options front, maximum Put open interest (OI) is at 11,000 followed by 11,200 strike while maximum Call OI is at 12,000 followed by 11,500 strike. We have seen Put writing at 11,300 followed by 11,000 strike while Call writing is at 11,300 followed by 11,800 strike. Option data suggests a broader trading range in between 11,000 to 11,650 zones in coming sessions.
Amit Gupta of ICICI Direct expects Nifty fall to pause near 11,200/11,000 level and the recovery from lower levels in the long series of August.
"Certain Nifty heavyweights have seen formation of short straddle strategy, which is supportive to the idea of rangebound market. However, pullbacks from the lower band of Nifty range are possible. The highest Call base of Nifty is placed at 11,500 strike. The upsides can be seen up to these levels after seeing a sharp decline in July. The Nifty futures open interest has declined from 19 million shares to 17 million shares, which shows liquidation of long positions in the recent fall and no major short build was seen in the index," he explained.
He said volatility has again declined below 13 percent, which also signals towards no major correction expected in the index.
Here are key data points to watch out for globally in the coming week:
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