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

The market snapped a three-week winning streak and fell more than 2 percent in the week ended June 10 as inflation risk, growth concerns, elevated oil prices, and FII selling hit the sentiment. Friday's trade was pathetic with the BSE Sensex tanking more than 1,000 points in a single day.

The BSE Sensex during the week corrected 1,466 points or 2.63 percent to 54,303, and the Nifty50 plunged 382.5 points or 2.3 percent to 16,202, while the Nifty Midcap 100 index fell 0.8 percent and Smallcap 100 index declined 1.1 percent.

Experts expect the volatility to remain high in the coming week as well, with the market first on Monday reacting to US inflation data that came in at 40-year high and industrial output data for April, both of which were released later on Friday. Bears seem to be more active than bulls in coming week with all eyes on Fed interest rate decision and CPI inflation data, experts said.

"Markets are again reeling under tremendous pressure across the globe citing sticky inflation which could prompt swift actions by the apex banks ahead. Indications are pointing towards the prevailing negativity to continue, however, bargain hunting in select index heavyweights could cap the damage," Ajit Mishra, VP - Research at Religare Broking said.

Amid increasing macro uncertainties, Yesha Shah, Head of Equity Research at Samco Securities, advised investors to exercise extreme caution till markets decisively find their direction.

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

Inflation

CPI inflation remains to be a key factor to watch out for especially after the Reserve Bank of India raised the full-year forecast for FY23 by 100 bps to 6.7 percent, which is over and above its target range of 4 percent (+/- 2 percent). The central bank factored in crude oil price at $105 a barrel, tense global geopolitical situation and hope of normal monsoon among others for its inflation projection.

Experts largely expect the CPI inflation reading to be around 7.1-7.3 percent for the month of May, against 7.79 percent in previous month which was highest since May 2014. Inflation data for the month of May and June will be important for the central bank for taking repo rate action in August policy meeting, while the experts largely feel the apex bank may take repo rate in 5.5-6.0 percent range by December.

CPI inflation data will be released on June 13 and WPI inflation will be announced on June 14. Markets participants will keenly analyse whether the import duty restrictions and rate hikes have had a positive impact on the inflation numbers, Yesha Shah said.

FOMC Meeting

Federal Open Market Committee will hold its two-day meeting next week on June 14-15, which is expected to be crucial, especially after the higher-than-expected inflation in May at 40-year high of 8.6 percent, the highest since December 1981.

Also read - Fed task gets tougher, putting 75-basis-point hike back in view

The volatility in equity and bonds (with US bond yields at 3.16 percent against 2.94 percent, and US dollar index at 104.23 against 102.16 on week-on-week basis) clearly indicated that inflation is yet to peak out, hence Fed's aggressiveness with respect to rate hikes in second half of this calendar year, economic projections and the Jerome Powell's commentary will be closely watched next week, experts said, adding the expected 50 bps rate hike in June policy meeting already discounted by the market.

Oil Prices

Crude oil prices remained around and above $120 a barrel last week, which is way above the assumption of $105 a barrel made by the Reserve Bank of India for its full-year inflation projections. This is a crucial factor for India as it is a net oil importer and hence this could be one factor restricting upside in the equity markets for several months now.

The fear of recession and lockdown in China to curb Covid crisis may weigh on oil prices to some extent, but largely tight supply amid geopolitical tensions may keep the oil prices elevated in the coming days, experts said.

International benchmark Brent crude futures closed at $122.01 a barrel, up 1.9 percent over $119.72 a barrel on week-on-week basis.

Balance of Trade

The final balance of trade data for the month of May will be important to watch out for next week, as preliminary data had indicated that the trade deficit in May 2022 widened to $23.33 billion which was a record high, against $6.33 billion reported in May last year which was impacted by brutal second Covid wave.

As per preliminary data, imports in May jumped by 56.14 percent YoY to $60.62 billion in May 2022 driven by petroleum and crude oil imports, while exports grew by 15.46 percent YoY to $37.29 billion during last month aided by petroleum products, electronic goods, and RMG of all textiles.

FII Selling

Relentless selling by FIIs continued in emerging markets, including India, given the negative sentiment across the globe due to rising inflation concerns amid geopolitical tensions and faster policy tightening by central banks. Hence, the factor is expected to continue to cap the upside in equity markets, experts said.

FIIs have been net sellers for eighth consecutive month, net offloading more than Rs 3.45 lakh crore since October 2021 against Rs 2.63 lakh crore of net buying by domestic institutional investors on the same period.

In the week gone by, FIIs have net sold Rs 12,662 crore worth shares, whereas DIIs have managed to compensate the outflow to a large extent by buying Rs 9,611 crore worth shares in same period.

Indian Rupee

The Indian rupee hit a fresh record low of 77.87 against the US dollar on Friday given the persistent FII selling, rising US bond yields, elevated oil prices amid supply tightness due to geopolitical tensions, and inflation concerns. The US dollar index, which measures the value of US dollar against the basket of world's leading six currencies, already traded above 104 now.

Hence, apart from above mentioned reasons, the domestic currency market will keep a close watch on the Fed move due next week. Experts largely expect the currency to depreciate around 78.20-78.50 a dollar in near to medium term.

Technical View

The Nifty50 has seen a bearish candlestick formation on the daily as well as weekly charts as it has decisively broken crucial supports of 16,400 as well as 16,250 in a single session, indicating a clear nervousness on the street. The index lost 1.7 percent for Friday and 2.3 percent for the week to close at 16,202 levels.

Having the market turning into bearish mode, experts largely feel the index can take support at around 15,900-16,000 but if that gets broken then it can move towards the May lows.

"The benchmark appears to be moving towards the support zone between 15,900 and 16,100. Despite the fact that last week's trading patterns suggest additional downside, the overall bearish momentum has moderated as Nifty is currently trading above the falling resistance line. As long as Nifty does not fall below 15,900, there is a significant chance that it can test 16,800 levels," said Yesha Shah who recommended traders keep a neutral view for the coming week and avoid aggressive trades on either side.

F&O Cues

The option data indicated that the Nifty could trade in a broader range of 15,800-16,700 levels in coming sessions with 16,000-16,200 being the crucial levels for stability, experts said.

Maximum Call open interest was seen at 17,000 strike, followed by 17,500 & 16,500 strike, with Call writing at 16,200 & 16,300 strikes, while there was maximum Put open interest at 16,000 strike, followed by 15,500 & 15,000 strikes, with Put writing at 16,200 strike.

"Going ahead, we believe the Nifty should consolidate above 16,200. However, sustainability below it may bring extended selling pressure towards 15,800 once again," ICICI Direct said.

On the positive side, the brokerage said the volatility index has remained low below 20 levels despite sharp sell-off seen on Friday. Hence, it believes major declines should not be seen and the Nifty should consolidate above 16,200 in the coming week. India VIX, the fear index closed at 19.58 levels, up by 2.27 percent on Friday and down 2 percent for the week.

Corporate Action

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

Global Data Points

Apart from FOMC meet, here are other global data points to watch out for next week:

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