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Dalal Street Week Ahead | 10 key factors that will keep traders busy next week

The coming week is expected to be volatile and rangebound given the expiry of December futures and options contracts, and developments related to Omicron, experts feel

December 26, 2021 / 09:46 AM IST

A Santa Claus rally last week led the equity markets rebound from a knee-jerk reaction to Omicron worries but the week ahead is likely to remain volatile, according to experts.


Movements will be rangebound given the expiry of December futures and options contracts and developments related to Omicron. Also, in the absence of global cues due to the Christmas and New Year holidays, the market could focus on domestic factors for direction.


“Markets will continue to see volatility and whipsaw-like movements as they respond to Omicron-related development and the monthly expiry. The week may see sectoral rotation, with beaten-down industries gaining traction,” says Yesha Shah, Head of Equity Research at Samco Securities.


A knee-jerk reaction to the rapid spread of infection by the Omicron variant had taken a heavy toll on the markets. But, assured that the Omicron infection would not be as severe as inflicted by the Delta variant, the markets settle down with moderate gains in the week ended December 24.


The BSE Sensex rose 112.57 points to 57,124.31, and the Nifty50 managed to settle above the crucial 17,000 mark, climbing 18.55 points to 17,003.75, supported by FMCG, IT and pharma stocks.

Close

The broader markets underperformed the frontline indices as the Nifty Midcap 100 fell 1.09 percent and Smallcap 100 index ended flat with a negative bias.


Shah suggests that investors can further examine the monthly expiry rollover data to capitalise on sectoral rotation and identify if the Santa Claus Rally will sustain.


Here are 10 key factors that will keep traders busy next week:


Omicron


The Omicron variant has created a lot of fear in the minds of investors and traders, which led to a steep correction in the market before the recent recovery. Several countries, including several European nations, announced COVID restrictions to avoid the rapid spread of virus, though medical experts said the Omicron variant is less risky than the Delta variant and also there are lower chances of hospital stay.


But still to avoid worst situation, the government has warned people to follow the COVID rules. The country crossed 400 Omicron cases so far. So, several states, including Assam, Maharashtra, Madhya Pradesh, Haryana, Gujarat, and Uttar Pradesh have imposed night curfews to restrict the spread of virus.


Investors will closely watch the developments with respect to Omicron in India as well as globally in the coming weeks. More than 141 crore COVID vaccine doses were administered so far with 41 percent of which completed the second dose.


IPO Listings


After five back-to-back listings last week, the coming week is also going to be somewhat busy as three IPO listings are scheduled. Adhesives and sealants company HP Adhesives will make its debut on the bourses on December 27 after closing the public issue on December 17. The issue price has been fixed at Rs 274 per share.


Pharma company Supriya Lifescience is going to list equity shares on December 28. The offer price is fixed at Rs 274 per share. The Rs 700-crore public issue was opened for subscription during December 16-20.


Cash management company CMS Info Systems will be the last listing of the year 2021, scheduled on December 31. The offer price is expected to be in the upper price band of Rs 216 per share. The issue closed on December 23.


FII Selling


Selling by FIIs has moderated in the last few sessions as FIIs get into the holiday season. This is still one of the key factors to watch out for as that has capped major upside in the market for more than two months now.


FIIs remained net sellers for yet another week ended December 24, offloading Rs 6,589 crore worth of shares, taking the total monthly selling to Rs 33,276 crore in December. This was in addition to around Rs 65,000 crore of shares sale in the previous two consecutive months.


On the contrary, domestic institutional investors retained support as their net buying at Rs 6,915 crore remained higher than FIIs during the week, taking the total net purchases to Rs 26,957 crore in December.


Auto Sales


Auto stocks will be in focus on Friday, ahead of the monthly sales data due over the weekend. Automobile companies will release their December sales data in the initial few days of January. So, Tata Motors, TVS Motor, Ashok Leyland, Hero MotoCorp, Bajaj Auto, Mahindra & Mahindra and Eicher Motors will be in focus.


Economic Data


Fiscal deficit and infrastructure output data for November will be released on Friday, while the current account numbers for the quarter ended September 2021 will be announced on the same day.


Deposit and bank loan growth for the fortnight ended December 17, and foreign exchange reserves for the week ended December 24 will also be released on Friday.


Technical View


The Nifty50 formed bearish candle on the daily charts on Friday, while there was a bullish candle formation on the weekly charts. The index lost 0.4 percent on Friday, after consistent rally in the previous three sessions, while it gained 0.1 percent during the week after 3 percent correction in the previous week.


“A reasonable negative candle was formed on the daily chart with minor lower shadow. The negative candle Friday has overlapped the small Doji candle of Thursday. Technically, this pattern indicates the formation of a bearish engulfing pattern at the swing high. Normally, a formation of Doji and bearish engulfing pattern back to back after a reasonable rise at the key hurdle could signal lower top reversal pattern,” said Nagaraj Shetti, Technical Research Analyst at HDFC Securities.


He further said the Nifty on the weekly chart formed a small bull candle with minor upper and lower shadow, which reflects a pullback rally of a down trend. “The Nifty is now placed at the support of ascending trend line at 16,780 levels as per the concept of change in polarity.”


Shetti feels the recent pullback rally of the last three sessions seems to have completed around the strong overhead resistance of 17,150-17,200 levels. “There is a possibility of further weakness down to 16,700-16,650 levels by next week. Any upside bounce from here could be a sell on rise opportunity.”


F&O Cues


Given the monthly expiry on Thursday in the coming week, traders will close their current month positions and roll over positions to next month. So there could be volatility in the expiry week. Option data largely indicated that the Nifty50 could see a wider trading range of 16,700-17,200 levels.


Maximum Call open interest was seen at 18,000 strike, followed by 17,500 and 17,200 strikes. Call writing was seen at 17,200 strike, then 17,900 and 17,500 strikes, with Call unwinding at 17,000, 16,600 and 16,500 strikes. Maximum Put open interest was seen at 16,500 strike, followed by 17,000 and 16,000 strikes. Put writing was seen at 16,500 strike, then 16,700 and 16,000 strikes, with Put unwinding at 17,000, 17,100 and 18,000 strikes.


“The Nifty holds highest Put concentration at ATM 17,000 strike for the monthly settlement, while Call option base is placed at 17,200. Moreover, the VWAP (Volume-Weighted Average Price) of December series is placed near 17,175. Thus, a move above 17,200 should trigger short covering in the markets. On downsides, we believe 16,700 may be retested if the Nifty remains below the 17,000 levels,” said ICICI Direct.


Considering the upcoming monthly settlement, the brokerage believes volatility will remain on the higher side. “More importantly, the year-ending index rebalancing may bring some sharp action towards settlement. Apart from this, one needs to keep a close watch if FIIs activity remerges after a dull period of almost a week.”


India VIX


The volatility increased significantly to over 20 levels on Monday but since then it gradually cooled down to settle around 16 levels, indicating some stability in the market and less possibility of major correction.


India VIX, which measures the expected volatility in the market, closed at 16.14 levels on Friday, down moderately from 16.33 levels on week-on-week basis.


“After testing almost 20 levels on Monday, the volatility index continued to subside and closed the week near 16 levels. Even US VIX has declined considerably from 27 to 17 during the week. We believe markets should not witness any major declines and levels of 16,700 should remain important support in the coming week,” said ICICI Direct.

Corporate Action

Here are key corporate actions taking place in the coming week:

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Global Data Points

Here are key global data points to watch out for next week:

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Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Dec 26, 2021 09:46 am
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