The market snapped five-week winning streak in the week ended October 1 as bears have taken charge over Dalal Street amid lack of drivers in the domestic cues. Global cues including rising oil prices & US bond yields, and increasing concerns over the Chinese economy dampened the sentiment, but accelerated core sector data to 11.6 percent and rising Manufacturing PMI in September to 53.7 limited the weekly losses.
Banking & financials, FMCG, capital goods and technology stocks weighed down the market, but oil & gas, power, metals and auto stocks saw buying interest during the week.
The BSE Sensex fell 1,282.89 points or 2.14 percent to close at 58,765.58, and the Nifty50 declined 321.15 points or 1.80 percent to 17,532.05, while there was outperformance in broader markets as the BSE Midcap index rose 0.12 percent and Smallcap index was up 0.69 percent.
The market is likely to consolidate further in the coming week and will closely watch the RBI commentary along with global cues including the movement in oil prices & US bond yields, and US jobs data, experts feel.
"Traders should expect an action-packed week ahead with a series of intriguing news. Market participants will try to read between the lines of the RBI's monetary policy," said Samco Securities.
Samco further said with OPEC meeting to determine output for November, market participants should brace themselves for greater volatility in crude oil prices. "Besides that, the Fed will be looking at the US jobs statistics, which will be announced at the end of the week, to determine their next moves on tapering. This caution may migrate to Indian markets, and investors are advised to be selective in their stock picks."
Here are 10 key factors that will keep traders busy next week:
The Monetary Policy Committee is expected to keep the repo rate and accommodative stance unchanged in the policy meeting scheduled to be held during October 6-8, but the RBI commentary over growth along with rising oil prices, improving Covid situation and global environment will be closely watched by the street.
"The Reserve Bank of India (RBI) is likely to keep interest rates unchanged and is expected to continue with its current accommodative stance to maintain sufficient liquidity in the system and monetary policy tightening is few quarters away as the economic revival has not reached the pre-Covid level. The low-interest rate regime will continue to support economic activities," said Mohit Nigam, Head - PMS at Hem Securities.
Jay Prakash Gupta, Founder of Dhan feels inflation and increasing crude oil prices are some concerns. "The RBI’s efforts, so far, to help the economy recover has been commendable, I think the RBI should not be in a hurry to raise rates."
Crude Oil, and OPEC Meet
Oil prices jumped to nearly three-year high levels due to rising demand with the increasing travel and tourism activities globally amid reducing Covid fear, when there is limited supply due to supply curbs by OPEC+ countries. Brent crude futures, the international benchmark for oil prices, jumped 53 percent in the current year 2021 and hit $80.75 a barrel during the passing week, the highest level since October 2018.
This is a bigger concern for a country like India, the net oil importer. Analysts feel the prices could hit $90 a barrel in coming months as OPEC+ is unlikely to raise output in the upcoming meet. The Organization of the Petroleum Exporting Countries and allies will meet on Monday to discuss the output plans.
"Another major source of worry for risk assets has also been a consistent rally in crude oil prices and the Brent contract's potential to even climb towards $90 per barrel over the medium term," said Sugandha Sachdeva, Vice President - Commodity and Currency Research at Religare Broking.
"It is anticipated that OPEC will not be able to increase output and catch up to pent up demand, which will lead to a further firming up of oil prices," she added.
The rising oil prices, buying demand for greenback and expected FII outflow amid likely Fed tapering sooner than later, along with falling equity markets dented sentiment at the rupee desk. The Indian rupee weakened to 74.15 a dollar, from 73 levels in the last one month and experts expect the currency to depreciate further to 75-76 against the US dollar if the current reasons accelerated further.
"Unlikely an increase in output by OPEC+ is going to hurt India's inflation trajectory-already at elevated levels, widen the current account deficit and ultimately chart a depreciation path towards 75.50 or 76 by December for rupee," said Sugandha Sachdeva.
She further said, "We believe the risks for the Indian rupee are skewed to the downside unless the unit convincingly breaches the 72.80 mark. The rupee will have to wriggle through a gradual process of Fed tapering and further rise in crude oil prices. That apart, the rally in domestic equities may not sustain at these levels and flows may dry up in the coming sessions, further putting some depreciation pressure on the Indian rupee."
The US dollar index futures, which measures the value of US dollar against the basket of world's six leading currencies, jumped to 94.09 from 93.33 during the week gone by, while the US 10-year bond yields rose to around 1.55 levels during the week, before settling at 1.46 against 1.45 on week-on-week basis.
Foreign institutional investors were net sellers during the week amid fear of reduction in easy liquidity going ahead as the Federal Reserve recently hinted about rate hike sooner than expected and gradual tapering towards the end of 2021, which all seem to have been indicated by the movement in US dollar index and bond yields.
"The increase in oil prices was due to the increase of travel and tourism throughout the world, which increased demand in the face of limited supply, prompting central banks to accelerate the withdrawal of cheap money. This was followed by a hint from the Fed that interest rates might be raised sooner than expected. Amidst the ambiguity, 10-year US Treasury bond yields rose to 1.56 percent, the highest level since June. An increase in bond rates not only attracts massive capital flows, driving FIIs away from other emerging nations, but it is also detrimental for Indian equities markets and the rupee," said Samco.
FIIs have net sold Rs 6,092 crore worth of equity shares in India during the week. On the contrary, the support by domestic institutional investors limited the correction to 2 odd percent in the benchmark indices, as they have net bought Rs 4,305 crore worth of shares during the week.
Coronavirus and Vaccination
Globally the Covid risk seems to be diminishing with increasing vaccination speed, which could be acting as a supporting factor for the markets. India has consistently been adding lower than 30,000 cases on a daily basis for more than a week now, with falling active cases and increasing recovery rate.
The Covid charts of several countries like the United States, Brazil, Germany, Mexico, Malaysia, France etc are also showing a declining trend.
On the vaccination front, more than 69.33 lakh Covid vaccine doses were administered in the last 24 hours ending at 8 am on Saturday. With this, more than 89.74 crore vaccine doses administered so far in the country including more than 24.3 crore people are fully vaccinated now and the rest has completed the first vaccine dose.
Economic Data and Earnings
Apart from RBI policy, in the coming week, Markit Services PMI and Markit Composite PMI for September will be released on Tuesday.
Deposit and bank loan growth for the fortnight ended September 24, and foreign exchange reserves for the week ended October 1 will be released on Friday.
Country's largest IT company Tata Consultancy Services will kick off the September 2021 quarter earnings season on Friday. TCS numbers will be released after market hours on Friday, but there could be some reaction in the stock price ahead of earnings.
The Nifty50 formed Doji kind of pattern on the daily charts and saw bearish candle formation on the weekly scale as the index fell half a percent on Friday and 1.8 percent for the week, indicating indecisiveness among the bulls and the bears, and nervousness in the market respectively. Going forward experts feel the index may face greater resistance at 18,000 and the support is placed at 17,300 mark.
"Going forward index has formed supports near 17,450-17,400 zone. If it manages to sustain above said levels one can expect a decent pullback towards immediate & strong hurdle zone of 17,620-17,740 where one can look for immediate profit in longs," said Rohit Singre, Senior Technical Analyst at LKP Securities. "The overall range for the Nifty is coming in between 17,300-18,000 zone."
Sameet Chavan of AngelOne advised traders to stay light and follow strict stop losses for existing positions.
The options data indicated that the Nifty50 could see a broad range of 17,000-18,200 levels and the immediate range for the index could be 17300-17800 levels, experts feel.
Maximum Call open interest was seen at 18,000 strike, followed by 17,700 & 17,800 strikes. Call writing was seen at 18,000 strike followed by 17,500 & 17,600 strikes. Maximum Put open interest was seen at 17,400 strike, followed by 17,500 & 17,000 strikes. Put writing was seen at 17,400 strike, then 17,000 & 17,500 strikes with Put unwinding at 17,600, 17,700 & 17,800 strikes.
"The maximum options pain of the September series at 17600 levels. These levels are expected to act as immediate support for the Nifty. Above these levels, once should adopt a buy on decline strategy. Moreover, due to quarter ending, index rebalancing and fund flows are likely to keep the directional bias intact in the coming week. On an immediate basis, we believe the Call base at 18000 should act as a psychological hurdle in the near term," said ICICI Direct.
The volatility index remained high and jumped up to 19.43 during the week, before ending at 17.2 against 16.92 on a week-on-week basis.
"While closure among Call writers can be attributed to the up move seen in the volatility index, it has not subsided in line with the global markets suggesting caution at higher levels. Hence, long positions should be kept with stop loss below the major Put base of 17600," said ICICI Direct.
Here are key corporate actions taking place in the coming week:
Global Data Points
Here are key global data points to watch out for next week: