Indian equities along with global peers succumbed to selling pressure in the week ended August 20 as rising delta variant COVID-19 cases globally, and likely earlier than expected Fed tapering plans dented market sentiment. Barring FMCG and IT, all other sectoral indices are caught in a bear trap.
Overvaluation, especially after nearly 7 percent rally in August so far taking the benchmark indices to new highs last week also pulled the market down. The BSE Sensex was down 107.97 points at 55,329.32 and the Nifty50 fell 78.60 points to 16,450.50.
The broader markets continued to underperform frontliners not only in the week gone by but also in August so far, partly due to overvaluation. The BSE Midcap index declined 1.14 percent and Smallcap index slipped 2.27 percent.
The coming week is expected to be volatile due to the monthly expiry of futures & options contracts and apart from that, also the market will keep a close watch on global cues (including world indices) and COVID-19 situation, experts feel.
Nifty may see further slide next week however the fall could be gradual, thanks to resilience in select sectors and index majors. It has the first line of defense around 16,200 zones. In case of a rebound, the 16,550-16,700 zone would act as a hurdle. Earlier, the decline was largely restricted to the midcap and smallcap but it is now likely to cascade to the index heavyweights also. We thus recommend maintaining positions on both sides and suggest limiting naked leveraged positions.
"We expect volatility to remain high next week due to the scheduled expiry of August month derivatives contracts," said Ajit Mishra, VP Research at Religare Broking who recommended maintaining positions on both sides and suggested limiting naked leveraged positions.
Vinod Nair, Head of Research at Geojit Financial Services feels in the absence of key domestic economic data points and awaiting its release, the market is expected to continue its focus on global events in order to gain momentum. Global rise in COVID-19 cases is also a cause for worry, keeping the volatility high, he said.
Here are 10 key factors that will keep traders busy in the coming week:
India remains in a better position in terms of number of COVID-19 cases and recovery but globally several countries including United States, United Kingdom, Germany, Mexico, Ukraine, Malaysia, Canada, Japan, Belgium, Sweden, Romania, and Israel continued see increase in COVID-19 cases which resulted into a nervousness & correction in equity markets globally. Hence this would be a key thing to watch out for in coming weeks.
The country reported a 34,457 confirmed COVID-19 cases in the last 24 hours ended at 8 am on August 21, taking the tally to over 3.23 crore so far, while the number of active cases declined by 2,265 to 3,61,340, the lowest in 151 days, as per the Union health ministry data suggested.
The COVID-19 recovery rate at 97.54 percent improved further from 97.46 percent on a week-on-week basis.
Globally, more than 21.03 crore people, so far, have been infected by the coronavirus, while over 44.08 lakh people have died so far. With the ongoing third phase of vaccination drive, more than 36.36 lakh vaccine doses were administered in India on August 20 as per the provisional report published by the Union Health Ministry. With that, the total number of COVID-19 vaccine doses administered in the country has reached to over 57.61 crore so far.
In addition, the Drug Controller General of India has given an Emergency Use Authorisation for Cadila's ZyCoV-D, the world's first and India's indigenously developed DNA-based vaccine for COVID-19 to be administered in humans including children above 12 years of age and adults.
Three companies Nuvoco Vistas Corporation, Aptus Value Housing Finance and Chemplast Sanmar are set to make a debut on the bourses in the coming week after closing the issue a week back.
Country's fifth largest cement maker Nuvoco Vistas Corporation will list its equity shares on August 23, while retail-focussed housing finance company Aptus Value Housing Finance, and specialty chemical company Chemplast Sanmar will debut on August 24.
Experts largely feel these listings are expected to get impacted by the recent correction in the market and weak listing of CarTrade Tech. Even the grey market clearly indicated that there has gradually been a fall in trading premium.
The IPO Watch and IPO Central data indicated that there was no premium for Nuvoco in the grey market, while Chemplast Sanmar and Aptus Value traded with marginal premium.
Jackson Hole Economic Symposium
Globally the next major event Jackson Hole Economic Symposium is scheduled to be held for two days - August 26-28, wherein the key thing to watch out for would be Federal Reserve Chair Jerome Powell's speech with respect to tapering if any, as the concerns over tapering intensified especially after the recent Federal Open Market Committee minutes.
Fed officials indicated the beginning of the tapering process sooner than later, but the central bank seems to be not in favour for policy tightening due to consistent virus risk to the US and the global economy.
The Indian rupee weakened by 11 paise to settle at 74.35 to the US dollar during the week as equity markets turned cautious amid fears of rising Delta variant cases globally and increasing possibility of Fed tapering earlier than expected. The US dollar index, which measures the value of US dollar against the basket of world's leading six currencies, jumped to 93.47, from 92.51 on a week-on-week basis, which also put pressure on the Indian currency. But the currency is getting support from falling crude oil prices.
"The rupee has been gravitating in a narrow range, but fears that Delta coronavirus variant could stall global economic recovery, and the Fed's continued communication to the markets that tapering is coming are the key variables leading to some risk-off sentiments in the markets," said Sugandha Sachdeva, VP- Commodity & Currency Research at Religare Broking.
She sees the 74.70 mark as near-term support for the domestic currency. "Markets would closely eye Fed Chair's speech at the Jackson Hole symposium later in the month for any tapering signal, which shall provide further cues for the Indian rupee going forward."
The sharp fall in oil prices from multi-month highs due to rising Delta variant cases globally is clearly a supportive factor for the market. This could be one reason that the weekly fall in equity is restricted to 0.2 percent.
Brent crude futures, the benchmark for oil prices in the international market, fell significantly from $70.59 a barrel to $65.18 a barrel on a week-on-week basis due to demand concerns amid increasing COVID-19 cases.
"For the week ahead, we are expecting global crude prices to witness further pressure as numerous nations worldwide are responding to the rising infection rate due to the coronavirus Delta variant adding travel restrictions to cut off the spread," Choice Broking said.
The outflow of foreign money also caused nervousness in the Indian equities in the week gone by, though domestic institutional investors remained supportive with net buying of Rs 1,696 crore in August including Rs 162 crore of buying in the current week.
FIIs have net sold Rs 4,314.4 crore worth of shares in the truncated week, taking the total net outflow to Rs 819 crore in August.
"FPI flows are expected to be volatile, given FOMC meeting minutes suggesting increased tapering likelihood. Tapering is expected to have a substantial impact on global equity markets," said Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities.
The Nifty50 fell 0.7 percent on August 20 but formed a bullish candle on the daily charts as the closing was higher than opening levels, while in the week, the index was down half a percent and formed a small bearish candle on the weekly scale. Experts expect the weakness to continue in coming sessions with 16,400 being the near term support.
"A small positive candle was formed on the daily chart with a long upper shadow. Technically this pattern indicates a short term downside reversal in the market and August 20's unfilled opening downside gap could be considered as a bearish breakaway gap. This could mean some more weakness for the market ahead," said Nagaraj Shetti, Technical Research Analyst at HDFC Securities.
"The next lower area of 16,250-16,300 levels could offer support for the market in the early next week and the market could bounce back from the lows by next week. On the higher side, intraday resistance is placed at 16,500-16,550 levels," he added.
Option data indicated that the Nifty50 could see a broader trading range of 16,200 to 16,700 levels and an immediate trading range may be 16,300 to 16,600 levels.
On option front, maximum Put open interest was seen at 15,500 followed by 16,000 & 16400 strikes while maximum Call open interest was seen at 16,500 followed by 16,600 & 17,000 strikes. Call writing was seen at 16,500 then 17,100 & 16,400 strikes while Put writing was seen at 15,500, 16,400 then 16,300 strikes, ahead of expiry of August futures & options contracts on coming August 26.
"Continued writing was experienced among Put strikes throughout the August series. Despite sharp declines seen on August 20, Put option open interest remained almost intact across strikes with the highest Put base at 16,400 strike. Any change in the bias for the expiry week should be considered only if the Nifty moves below 16,400 levels on a closing basis," said ICICI Direct.
"The open interest in the Nifty has moved to its highest levels since March 2020. In the current weakness, it has declined marginally due to long liquidation. However, net longs from FIIs remained intact and closure of positions from FIIs may bring further pressure on the index," he added.
India VIX moved up from 12.99 to 14.01 levels, which caused a profit booking in the market. "VIX is at its highest daily close of the last 39 trading sessions indicates some volatile cues could be seen in the market," said Chandan Taparia of Motilal Oswal.
Here are key corporate actions taking place in the coming week:
Foreign exchange reserves for the week ended August 20, and bank loan & deposit growth for the fortnight ended August 13 will be released on August 27.
Here are key global data points to watch out for next week: