The rising expectations for faster Fed tightening in 2022 especially after reaching inflation to 40-year high and increasing oil prices amid geo-political tensions dampened the market sentiment in the week ended February 11, though the RBI's unexpected dovish stance by keeping key policy rates unchanged managed to compensate for some losses. As a result, finally the benchmark indices ended the week with 0.8 percent losses.
The BSE Sensex fell 492 points to 58,153 and the Nifty50 declined 142 points to 17,375, weighed down by FMCG, IT, infra, select banking & financials and energy stocks. However, metals stocks bucked the trend with the respective index rising more than 3 percent.
The broader markets also caught in a bear trap where the maximum selling pressure was seen during the week. The Nifty Midcap 100 index declined 2.3 percent and Smallcap 100 index plummeted 4.5 percent.
The coming week is expected to be volatile as investors will keep a close watch on oil prices, minutes of the recent Fed meeting (February 17) to get clear idea about further action, experts feel. Also, there could be a bit of stock specific action as we are close to the end of December quarter earnings and reaction to January CPI & WPI inflation data.
"After the reaction to US' hot inflation, investors globally will be focused on gaining a clearer understanding of the Fed's action, as the minutes of the most recent FOMC meeting are set to be released. Another significant metric to watch will be China's inflation data, which has recently shown indications of easing," says Yesha Shah, Head of Equity Research, Samco Securities.
Back home, she says, "with the RBI downplaying inflation and rising crude and commodity price overhangs, D-Street investors will be keeping a close eye on the domestic inflation rate to predict its future path.
Given these events, markets are largely expected to remain volatile and rangebound, according to her, who advised amid elevated volatility, investors should sit tight on their quality investments and avoid aggressive bets until a clear direction is established.
Here are 10 key factors that will keep traders busy next week:
The December quarter earnings season will end in the coming week and more than 1,000 companies will release their quarterly scorecard next week. The key earnings to watch out for would be Coal India, Eicher Motors, Grasim Industries, SpiceJet, Adani Enterprises, Adani Wilmar, Ambuja Cements, and Nestle India.
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Among others, Rossari Biotech, AGS Transact Technologies, Apex Frozen Foods, Balkrishna Industries, Bharat Dynamics, BGR Energy Systems, Dish TV India, Equitas Holdings, Future Retail, Gateway Distriparks, Graphite India, Greenply Industries, Ipca Labs, Manappuram Finance, Nagarjuna Fertilizers, Natco Pharma, NBCC (India), PC Jeweller, PTC India, RailTel Corporation of India, Repco Home Finance, Sadbhav Engineering, Shriram Properties, Spandana Sphoorty Financial, Sterling and Wilson Renewable Energy, Zuari Global, CRISIL, KSB, and Schaeffler India will also be closely watched by the street.
The Reserve Bank of India seems less worried about CPI inflation as the central bank expects inflation, though looks elevated, to moderate in the first half of FY23. Hence, last week, it retained an accommodative stance with no change in key policy rates.
The inflation has been rangebound and is expected to hit the upper boundary of RBI's' targeted level (4 percent and plus-minus 2 percent) in January 2021 but could moderate in subsequent months, hence the central bank may continue with an accommodative stance and will focus more on growth, experts feel. The data for WPI and CPI inflation will be out in the evening on February 14.
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"A low base is likely to push headline inflation up to 6 percent in January as on a MoM basis, food prices are easing, and the peak in core inflation is likely behind us. However, both headline and core inflation are likely to moderate in the coming months, giving room for broadly accommodative policy conditions to continue," said Rahul Bajoria, Managing Director & Chief India Economist at Barclays India.
"While some deferred increases in motor fuel costs are likely from March onward, these are unlikely to alter the downward trajectory of headline inflation, in our view," he added.
Oil Prices
Oil is the key part of our import bill and the rising oil prices to more than seven-year high amid escalation of tensions between Ukraine and Russia is a rising risk as India has to shell out more money for importing oil than earlier. On the other hand, the government is not increasing fuel prices, especially due to ongoing States elections (Uttar Pradesh, Punjab, Goa, Manipur and Uttarakhand), but experts feel the fuel prices could increase after those elections get over.
International benchmark Brent crude futures jumped up to $95 a barrel intraday on Friday, before ending up at $94.44 a barrel against $93.27 a barrel on a week-on-week basis. The prices surged 32 percent in the last two months amid supply concerns.
FII Selling & US Bond Yields
The behaviour of FIIs who have been relentless sellers for the past several months will be closely watched. FII outflow amid rising US bond yields indicating faster policy rate tightening in the US to fight inflation in 2022 has been restraining equity markets from rising significantly towards record highs for more than three-and-half-months now, though domestic investors including retail have been providing strong support at lower levels amid economic recovery.
FIIs have net sold more than Rs 5,600 crore worth of shares in the passing week, taking monthly outflow to over Rs 9,700 crore in February. Their total selling was more than Rs 1.52 lakh crore since October 2021.
On the contrary, domestic institutional investors have net bought Rs 3,562 crore worth of shares during the week gone by, taking total monthly buying to more than Rs 5,800 crore in February. They have been net buyers since March 2021.
The US bond yields cooled down after crossing the psychological 2 percent mark during the passing week amid inflation concerns. It settled flat at 1.92 percent on a week-on-week basis.
States Elections
Another key event to watch out for would be the developments related to five States elections including Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur.
Assembly polls in Uttar Pradesh have already kicked off last week, while Uttarakhand, Goa and Punjab polls will take place next week. Manipur polls will be in the last week of February. The results of all these elections will be announced on March 10, till then experts feel the market will keenly watch the data and remain rangebound.
LIC IPO
The initial public offering of Life Insurance Corporation of India is going to be the much-awaited event by the street as it would be the largest ever IPO in the history of Indian capital markets. The government is expected to launch the IPO in March 2022 and the reports indicated that the DRHP filing is likely to be in the coming week as the street awaits the board approval for the DRHP.
The most interesting thing to watch out for would be the expected sharp increase in demat accounts ahead of LIC IPO, which is a positive for the primary market as well as the government to earn revenue. The reports indicated that the IPO size could be in the range of Rs 70,000 crore to Rs 1 lakh crore.
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"LIC IPO may bring at least 1 crore new Demat accounts and that could be a big positive for the dynamics of the Indian market because if 10 percent of these investors become active then it will increase participation of retail investors and it will also help the government to generate revenue through STT (securities transaction tax)," said Santosh Meena, Head of Research at Swastika Investmart.
Apart from positive aspects, "there could be some negative impact on the secondary market as it may suck out the liquidity from the secondary market," he said.
Technical View
The Nifty50 formed bearish candle on the daily as well as weekly charts as it closed 1.3 percent down on Friday and fell 0.8 percent at 17,374.75 during the week respectively, but it has been consolidating in a narrow range.
The index failed to close above 10 (17,470), 20 (17,566) and 50 (17,464) days moving averages and has been facing hurdles at 17,800 for several weeks, which needs to get cleared for sharp upside ahead, experts feel. On the downside, it has managed to hold on to the 17,000 mark quite well, which could be crucial support.
"The upside bounce of the last three sessions seems to have reversed down and the market is now poised for more downside towards 17000 levels by next week. The overall chart pattern indicates a chance of minor upside bounce from the lows and a probability of deep cut in the market in the near term. Immediate resistance is placed around 17,460 levels," said Nagaraj Shetti, Technical Research Analyst at HDFC Securities.
Yesha Shah of Samco Securities also feels the index is now contained in a range of 17,050 to 17,800. "A decisive break from this range is likely to set the next course of action going ahead. Most of the global indices are also exhibiting a bearish undertone," said Shah who suggests traders maintain a neutral outlook and create new longs only on dips or around immediate support levels.
F&O Cues
The option data indicated that the Nifty50 could see a wider trading range of 17,000-17,800 levels and the immediate range could be 17,200-17,600 levels, while the volatility cooled down a bit during the week but overall in last four months, it did not move much, indicating no significant move on either side for the Nifty.
The maximum Call open interest was seen at 18000 strike followed by 17600 & 17500 strikes, with Call writing at 17400, 18000 & 17500 strikes, while the maximum Put open interest was seen at 16500 strike followed by 17000, 17400 & 17100 strikes, with Put writing at 17100 & 17000 strikes, and Put unwinding at 17600 & 17700 strikes.
"The Nifty holds highest Put concentration at ATM 17400 strike while Call option concentration is at 17500 strike for the coming weekly settlement indicating expectations of rangebound movement," said ICICI Direct.
However, "unlike last time, options concentration is equally distributed among both Call and Put strikes. We expect the Nifty to consolidate for sometime with immediate support at 17,200 levels," he added.
Despite high intraday volatility and sharp swings, volatility has declined marginally on a weekly basis, down by 1.16 percent to 18.68. "We believe volatility will remain elevated in coming weeks and negative bias should be formed only if the Nifty sustains below 17,200," said ICICI Direct.
Corporate Action
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:
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