Dalal Street Week ahead | 10 key factors that will keep traders busy this week

It was yet another dismal week for the market. The benchmark indices shed around 2.5 percent over the worsening Russia-Ukraine war that further pushed up oil prices over supply concerns, fuelling worries of runaway inflation.

Auto sales for the month of February and Q3FY22 GDP data also dampened the sentiment for the week ended March 4.

Both equity benchmarks finished the week below the closing low of February 24, the biggest single-day fall this year.

The Sensex plunged 1,525 points, or 2.73 percent, to 54,334, and the Nifty50 declined 413 points, or 2.48 percent, to 16,245, weighed down by auto, banking & financials and consumption stocks. Metal, oil & gas and IT indices bucked the trend and curtailed losses.

The broader markets outperformed the frontliners. The Nifty Midcap 100 index fell 1.5 percent and smallcap 100 index 0.35 percent.

The coming week is expected to favour bears again, given the elevated volatility unless the Ukraine situation subsides. The election results on March 10 could also influence the market, experts said.

"The market's direction would be heavily influenced by the ongoing geopolitical tensions. On the macroeconomic front, investors will be keeping a careful eye on China's and the United States' inflation numbers.

“As commodities and crude oil prices are skyrocketing amid the war, inflation data becomes a critical indicator to determine the Fed's next course of action," said Yesha Shah, Head of Equity Research at Samco Securities.

Considering these events and state election results, "the market's rangebound movement is expected to continue, and investors can look for selective buying while maintaining an overall cautious outlook," she said.

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

Ukraine-Russia War

The Russia and Ukraine war would be the biggest factor for markets. Russia is getting aggressive by stepping up military operations, facing strong resistance from Ukrainians.

Russian President Vladimir Putin warned that Ukrainian statehood was in jeopardy and likened the West’s sanctions on Russia to “declaring war”, while a promised ceasefire in the besieged port city of Mariupol collapsed amid scenes of terror, the Associated Press reported.

Ukrainian President Zelenskyy has been asking for weapons from western countries and has sought more sanctions against Moscow.

Click Here To Check All Live Updates on Ukraine-Russia War

Around 1.5 million people have fled Ukraine, triggering the worst refugee crisis of the century. Thousands of Indians, most of them students of medicine, have left the war-torn country and are being brought back home.

The United States, too, has asked its citizens to leave Russia immediately over fears of harassment by Russian security officials and expected issues of accessing money after Visa and Mastercard suspended operations in Russia.

Oil price

The war has pushed oil prices to their highest level in a decade. The reports of the US considering an option to cut US imports of Russian oil also lifted sentiment. International benchmark Brent crude futures hit nearly $120 a barrel during the week, the highest intraday level since May 2012, before finishing the week at $118.11 a barrel on March 4, the highest closing level since February 2013.

Also read: Russian invasion reorders West's calculations on cost of war

High oil prices raised risks of inflation and worries for corporate earnings as several sectors may face margin pressure over the increasing operations cost. Economic growth may also get hit over the short term and the trade deficit could get widened as India imports 80-85 percent of its oil requirement.

Experts expect oil prices to remain elevated as long as the Ukraine war continues, which could keep equity markets volatile.

Also read: TCS share buyback offer to stay open from March 9 to 23

States election Results

The results of the Uttar Pradesh, Punjab, Goa, Manipur and Uttarakhand assembly elections to be announced on March 10 could also influence the market.

Experts expect a bit of volatility but that would be temporary, as the market generally focuses more on national elections rather than states.

"While state-level elections do create anxiety about uncertain outcomes, they do not impact the overall earnings trajectory of the corporate sector in a material way. Therefore, the state election results may have some short-term market impact but we believe that long-term investors would ignore these election results," said Abhay Agarwal of Piper Serica.

Global data points

The US and China's inflation numbers for February will be closely watched by global investors as further moves related to policy tightening by the Federal Reserve will be dependent on inflation data. In January, the US inflation hit a 40-year high of 7.5 percent, favouring expectations of more rate hikes in coming quarters.

Also read: Living costs likely to surge: Gita Gopinath on what Russia-Ukraine war means for the world

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

Relentless Selling Pressure by FIIs

Foreign institutional investors (FII) have been on a selling spree due to the Ukraine-Russia war, higher commodity prices and expected policy tightening by the US Federal Reserve. Domestic institutional investors (DII) managed to offset FII outflow to a great extent.

Experts expect the selling to remain intense and feel the market may get support from DIIs, though the upside is feeling pressure from FIIs.

FIIs have net sold more than Rs 2 lakh crore worth of shares since October 2021, which seems to be the highest monthly selling streak. In the same period, DIIs net bought Rs 1.38 lakh crore worth of shares.

In the week gone by, FIIs net sold shares worth Rs 22,563 crore, whereas the net buying by DIIs was to the tune of Rs 16,742 crore.

Also read: Hitch a ride on auto stocks when demand spikes but it's too late for oil & gas, says Abhay Agarwal of Piper Serica

Economic Data

Industrial and manufacturing production data for February will be released on March 4. Bank loan as well as deposit growth for fortnight ended February 25, along with foreign exchange reserves data for the week ended March 4, will also be released the same day.

Technical View

The Nifty has moved closer to its crucial support of 16,130 on March 4 and if that gets decisively broken in coming sessions, the index could see more selling towards the 16,000-15,800 range, experts said.

The index has formed a bearish candle, which resembles the Spinning Top pattern on the daily charts, indicating indecisiveness among the bulls and the bears. There was bearish candle formation on the weekly scale, indicating nervousness among traders and investors. So, overall the trend seems to be in favour of the bears with consolidation.

"Formation of range movement at the lower high has eventually resulted in a downside breakout. The overall chart pattern signal more weakness for the Nifty ahead and the new swing lows of around 15,800 could be registered in the next one-two weeks. Immediate resistance to be watched at 16,400 levels," said Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

F&O Cues

The options data indicates the Nifty50 could see a wider trading range of 15,800 to 16,700 in the coming sessions.

The maximum Call open interest was seen at 17,000 strike followed by 16,700 and 16,800 strikes with Call writing at 17,000 strike then 16,300 and 16,700 strikes.

The maximum Put open interest was witnessed at 16,000 strike followed by 15,500 and 16,300 strikes with the Put writing at 16,300 strike then 16,200 and 15,500 strikes.

"Considering high volatility and continued FII selling pressure, a positive bias is recommended only above surpassing the Call base of 16,500," ICICI Direct said.

The fear index

The volatility remained elevated in the week gone by, indicating more volatile swings that will favour the bears.

India VIX, the fear index, climbed above the 30-mark again before settling at 27.95 on March 4, up 4.5 percent against 26.74 seen on February 25.

Volatility has to fall below the 20-mark for stability and to bring the bulls back on street, experts said.

Corporate action

Here are key corporate actions for the coming week:

Disclaimer: The views and investment tips expressed by 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.