The market showed a strong recovery on Friday, but overall remained in bear trap for the week ended March 19 given the rising fear of the second wave of COVID-19 and the volatility in US bond yields despite the Federal Reserve's dovish stance. The volatility in FII inflow, too, caused caution in the market.
The BSE Sensex corrected 933.84 points or 1.84 percent to close the week at 49,858.24, while the Nifty50 fell 286.95 points or 1.91 percent to 14,744 on selling pressure in banking & financials, auto, capital goods, healthcare, and IT stocks. FMCG was the clear outperformer with 2.8 percent gains.
The broader markets fell more than benchmark indices. The BSE Midcap index was down 2.6 percent and Smallcap index declined 3.5 percent.
Experts expect the volatility to continue in the market given the monthly expiry scheduled in the coming week and feel COVID-19 cases and US bond yields are expected to remain closely watched by the street.
"A fear of rise in COVID-19 cases is again at the top of an investor's mind as any new development can impact supply chains and sales of corporates. Furthermore, bond yield movement should also be on one's radar as it will be a key variable which can dictate future equity movement," Nirali Shah, Head of Equity Research at Samco Securities told Moneycontrol.
"There are still some more IPOs in the pipeline which can cloud markets for liquidity. Investors are advised to keep sufficient liquidity which can help to take advantage in case of any healthy correction," she said.
Here are 10 key factors that will keep traders busy next week:
The upward graph of COVID-19 cases seems to be indicating the fear of the second wave in India as on Friday, the country reported 40,953 confirmed cases with 188 deaths, taking the total tally to 1.16 crore and 1.6 crore respectively.
The active COVID cases, which were below 1.5 lakh at some point in February, jumped to 2.88 lakh, while the recovery rate further slipped to 96.12 percent, from 96.82 percent seen last week, as per the Health Ministry data. The mortality rate remained unchanged at 1.38 percent.
Maharashtra remained at the forefront with the highest ever daily figure of 25,681 cases, followed by Punjab, Kerala, Karnataka, Gujarat, Tamil Nadu, and Madhya Pradesh. As a result, there are restrictions in some parts of the nation and it is also expected to be the key factor to watch out for in the coming weeks.
On the other side, there has been increase in vaccination and test count. About 10.60 lakh COVID tests were conducted and 27.23 lakh people were vaccinated on Friday. India, so far, crossed the COVID vaccination tally of 4 crore mark, reporting 4.21 crore vaccinated people in the country.
2) US Bond Yields
The ghost of US bond yield is expected to direct the market to behave like a pendulum in the coming weeks. The US 10-year treasury yield jumped to a 14-month high of 1.749 percent on Thursday despite a dovish stance by the Federal Reserve, which experts feel is a bit of concern for emerging markets like India because generally, FII starts withdrawing money from EMs.
The yield signed off the week at 1.73 percent, rising from 1.63 percent seen last week. The US Federal Reserve pledged to keep the interest rate low till 2023 and continue its at least $120 billion bonds buying programme per month, while it raised GDP forecast to a 6.5 percent for FY21 and forecast unemployment rate to fall to 4.5 percent in current year.
"Inflation is termed to be bad for bonds and rising yields is indicative of selling in bonds. Fed is looking comfortable with some increase in yields so long as it is a reflection of economic recovery. In case inflation spirals out of control, the Fed has other measure to douse the fire," Abhishek Bansal, Founder Chairman of Abans Group said.
3) US-China Trade War
Globally the markets will keep a close watch on US-China relations as in the recent meeting, the world's largest superpowers criticised each other. In a first high-level talk after the Democratic party's Joe Biden elected as US president, the US, as well as Chinese officials, criticised each other over human rights, trade, and international alliances. Experts feel this could be an indication that Biden may continue the tough stance taken by Trump, ahead.
The primary activity seems to be endless as Barbeque-Nation Hospitality, the 17th initial public offering of the year 2021, is set to open for bidding in the next week during March 24-26. The price band for the offer has been fixed at Rs 498-500 per share.
The operator of the dining restaurant chain Barbeque Nation Restaurants is planning to raise around Rs 453 crore through the public issue.
The later part of the week is expected to be the busiest for the market as Dalal Street is going to see four back-to-back listings. Anupam Rasayan will make a debut on the bourses on March 24, Craftsman Automation and Laxmi Organic Industries on March 25, and Kalyan Jewellers on March 26, as per the schedule available in their RHPs. All closed their public issues in the passing week.
6) FII Flow and Oil Prices
The FII flow has been highly volatile in the month of March as foreign investors were net sellers in six out of 14 trading sessions of the month. The volatility inflow could be portraying caution in the market, experts feel, though they net bought Rs 5,894 crore worth of shares in the current week and made over Rs 9,000 crore of buying in March so far.
"Apart from rising yields, Indian indices are facing uncertainties from the second wave of coronavirus and ascending retail inflation. Even though the number of Indians getting vaccinated is increasing, market participants have turned wary of equities. Foreign investors too have become net sellers in the current month on some days. This suggests that bulls are losing their grip and are unable to hold the market," Nirali Shah said.
Meanwhile, oil prices cooled down sharply in the last few days amid fear over demand due to rising coronavirus concerns in India, Brazil, and some nations in the European Union. International benchmark Brent crude futures fell to below $65 a barrel from around $70 a barrel seen in the previous week. Any dip in oil prices is a positive for a country like India which is the net oil importer. Hence this could play a supportive factor for the market, experts feel.
7) Technical View
The Nifty50 fell 1.9 percent for the week and formed Hammer kind of pattern on the weekly scale, while it gained over a percent on Friday to close at 14,744 and depicted a Piercing Line pattern which is a kind of bullish reversal pattern and indicating that the market absorbed selling pressure and is ready to move higher.
Experts feel the market is still in the broader range and unless it decisively closes above the 15,300 marks the strong bullish bias is unlikely.
"On a weekly basis and daily basis, the market has formed reversal formation after completing the corrective move at 14,350 levels. Even if the correction is completed, the current rally will be called a pullback until the Nifty crosses the 15,350 levels. The Nifty could go up to 14,850 and 14,950 levels," Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities said.
"14,600 and 14,450 would remain important supports. Keep a buy-dips strategy for the coming week," he added.
8) F&O Cues
The options data indicated that maximum Put open interest was seen at 14,500 followed by 14,000 and 14,400 strikes while maximum Call open interest witnessed at 15,500 followed by 15,000 and 15,200 strikes. Call writing was seen at 15,500 then 15,600 strike while Put writing was seen at 14,400 then 14,500 strike. Hence a wider trading range for the Nifty could be 14,350 to 15,000 levels, experts feel.
"The major Call base for the settlement week is placed at 15,000 strike, which should be an immediate hurdle for the index in the short term. Moreover, the roll spread for the April series is significantly higher near 80 points. Such high spread indicates prevailing caution in the market," ICICI Direct said.
"Despite the large move was seen on Friday, no major change in options accumulation was seen, and major open interest distribution remained at 14,500 Put and 15,000 Call. Moreover, March series VWAP levels near 14,900 should act as an immediate hurdle for the March settlement," the brokerage added.
India VIX fell from 21.70 levels to 19.98 levels on a week-on-week basis. "Lower VIX with rising Put Call Ratio indicates that Bulls may get some stability after the losing ground of last few sessions," Chandan Taparia of Motilal Oswal said.
9) Corporate Action and Economic Data Points
Here are key corporate actions taking place in the coming week:
Meanwhile, deposit and bank loan growth for the fortnight ended March 12, and foreign exchange reserves for the week ended March 19 will be released on Friday.
10) Global Cues
Here are key global data points to watch out for next week: