Dalal Street This Week: 10 key factors that will keep traders busy

Indian equity benchmarks succumbed to selling pressure in the week ended February 24, plummeting more than 2.5 percent. This was the biggest weekly fall in last eight months, as the investor sentiment was dampened by weak global cues and FII outflow.

Hawkish commentary by Fed officials and strong economic data signaling continuity of interest rate hike cycle for a longer period than market thinks to bring inflation under control, with spike in US dollar index and bond yields, and resurgence of cold war between US & Russia weighed on sentiment.

During the week, the BSE Sensex fell more than 1,500 points to close at 59,464, while the Nifty50 lost 478 points to settle at 17,466, the lowest closing level since October 17 last year, wiping out all previous three-week's gains. With selling across sectors, both these indices reached closer to Budget day's low.

The broader markets also traded under pressure with the Nifty Midcap 100 and Smallcap 100 indices declining 1.8 percent and 2 percent respectively.

After the severe selling pressure, the market next week may see some kind of pullback rally but overall, volatile and rangebound trade is likely to continue with major focus on global cues to get direction on either side, experts said. The market participants will also keep an eye on Q3FY23 GDP numbers, auto sales data for February month, monthly manufacturing and services PMI numbers globally.

"The market might take a breather next week initially but the tone is likely to remain negative. Further, correction in US markets could add to the pessimism," Ajit Mishra of Religare Broking said.

Amid all, the majority of the sectors are facing heat, but the continuous underperformance of the banking and financials would remain the key concern, he feels. Thus, Ajit recommends continuing with the “sell on rise” approach until the Nifty shows some signs of reversal.

Economic growth numbers for third quarter of current financial year will be a key factor to watch, on the domestic front, scheduled to be released on February 28. Most of economists expect the economic growth to slow down for Q3FY23, from 6.3 percent in previous quarter may be due to external headwinds impact on manufacturing and exports.

"We expect India's Q3 GDP to rise 5 percent YoY. We think a resilient domestic backdrop and continued increase in services activity continued to prop up India’s growth, with only a modest drag coming from manufacturing and exports due to external headwinds," Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays said.

The second estimates for full year (FY23) growth numbers will also be released on same day. Per first advance estimates by government in January, the economic growth is expected to be 7 percent in FY23, against 8.7 percent in previous year, while the RBI in its monetary policy in December revised full year growth estimates downwards to 6.8 percent, from 7 percent earlier.

The fiscal deficit and infrastructure output numbers for January will be released on February 28, while on March 1, we will have S&P Global Manufacturing PMI data for February.

S&P Global Services PMI numbers for February, as well as foreign exchange reserves for week ended February 24 will be released on March 3.

The expansion in India's manufacturing sector activity continued in January, with the S&P Global Purchasing Managers' Index (PMI) coming in at 55.4, but down from 26-month high of 57.8 seen in December 2022. The services PMI also expanded but lost momentum, falling to 57.2 in January, from 58.5 in December. As a result, the composite PMI (a combination of the manufacturing and services indices) dropped to 57.5 in January from 59.4 in previous month.

India's forex reserves have seen fall for third consecutive week, coming in at $561.267 billion for week ended February 17, down by $5.681 billion compared to previous week.

Auto stocks including Tata Motors, Ashok Leyland, Maruti Suzuki, TVS Motor, Bajaj Auto, Hero MotoCorp, Escorts, M&M, and Eicher Motors will be in focus this week as all automobile companies will release their monthly numbers from March 1st.

Globally the markets participants will closely watch the movement of US dollar index as well as bond yields, as fear of more rate hikes after hawkish Fed comments lifted DXY beyond 105 level and 10-year treasury yields near 4 percent, making the Indian equity markets nervous last week.

The US Dollar index closed at 105.26 on Friday, the highest closing level since December 6 last year, while US bond yields settled at 3.95 percent.

Further, traders will also keep an eye on commentary by Fed officials (Jefferson, Waller, Bostic, Bowman and Barkin) scheduled this week.

The volatility in FII flow is one of real concerns for the market, and experts feel the said volatility is expected to continue till we get the clear signal from Federal Reserve about pause in interest rate hike cycle.

FIIs made good buying of Rs 4,000 crore worth shares in the week ended February 17, but last week, they were at sellers' desk as they have offloaded over Rs 3,100 crore worth equities, pulling the market further down. This raised the possibility of FII flow may be turning negative for third consecutive month.

On the contrary, domestic institutional investors (DIIs) have managed to absorb maximum FIIs selling. They are net buyers for third straight month in February to the tune of nearly Rs 12,400 crore including Rs 3,200 crore worth buying in passing week.

The bear attack was so severe that the Nifty50 has formed robust bearish candle on the weekly charts, with making lower high lower low formation. The index has taken a support at 50-week EMA (exponential moving average - 17,451) and closed near the long upward sloping support trendline adjoining lows of March 2020 and June 2022.

Hence, on the weekly basis, the next crucial support can be the budget day's low (17,353) which coincides with 50-week SMA (simple moving average - 17,339). If the said levels get broken then the Nifty may fall towards 17,000 mark, whereas on the higher side, 17,600-17,800 is expected to be crucial resistance area, experts said.

"Nifty on the weekly chart formed a long bear candle, which indicates a sharp reversal in the market this week after the recent upside bounce. The short term trend of Nifty continues to be negative," Nagaraj Shetti, Technical Research Analyst at HDFC Securities said.

He feels having failed to show any crucial bottom reversal pattern near the important support of 17,500 mark so far, there is a possibility of further weakness in the coming sessions. The next lower support is at 17,300 and any upside bounce from here could find resistance at 17,600 levels, he said.

On the weekly Option data, we have seen maximum Call Open interest at 17,600 strike, followed by 18,000 strike and 17,700 strike, with Call writing at similar strikes in similar sequence.

On the Put side, the maximum open interest was seen at 17,000 strike, followed by 17,600 strike and 17,400 strike, with writing at similar strikes in same sequence.

The above Option data indicated that 17,600 is expected to be near term resistance area for the Nifty50 with support 17,400 and crucial support at 17,000 area, while overall, the broad trading range could be 17,000-18,000 levels.

"The Put/call ratio is at 0.79 and FIIs started the March series with 82 percent short positions, both of which point to an oversold market, if we look at the derivative data. The previous two times, in July and October 22, FIIs began new series with such substantial short positions that the Nifty experienced rallies of about 1,000 points. This data represents hope for the bulls," Santosh Meena, Head of Research at Swastika Investmart said.

On other side, the volatility also increased but cooled down considerably from weekly high of 16 levels, hence which may not be a major concern for the market. India VIX closed at 14.19 levels, up by 8.4 percent from 13.09 levels on week-on-week basis.

The primary market is going to be active once again, after a lull for couple of months, as automotive components maker Divgi TorqTransfer Systems is set to hit Dalal Street with its initial public offering on March 1. The closing date will be March 3.

The public issue comprises a fresh issuance of shares worth Rs 180 crore, and an offer for sale of 39.34 lakh shares by public shareholders. The company will announce its price band details on coming Monday.