The market plunged more than 5 percent in the week ended January 29, the biggest weekly fall since March last year as foreign investors sold shares on caution ahead of Union Budget. Global mood was also weak as lockdown to control COVID-19 infections may delay the economic recovery and speculative activities in the US market.
The BSE Sensex fell 2,592.77 points or 5.30 percent to 46,285.77 and the Nifty50 corrected 737.30 points or 5.13 percent to 13,634.60, underperforming the broader markets. The Nifty Midcap 100 index declined 3.5 percent and Smallcap 100 index was down 2.33 percent.
The benchmark indices nearly doubled from its March 24th low before the correction seen last week.
Experts feel the volatility is also expected to continue in the coming week given the big event ahead - Union Budget followed by RBI policy which both can set the market direction in near term.
"Our rationale is that a correction of 10 to 15 percent is an essential to such a liquidity driven rally, to bring soundness and moderate the overvalued market, created by oversupply of global & retail inflows," Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.
In the coming week, "Union budget will be the key to add strength in the domestic market to perform better compared to the rest of the world. The risk is that expectations are high that the government will find a balance between populism, reform and growth under a weak fiscal position," he said.
"The global market will be watchful on any regulatory actions which may be taken given the recent speculation issue, doubting the efficient working of the market system," he added.
Here are 10 key factors that will keep traders busy next week:
Union Budget - the much-awaited big event of the year - will be presented on February 1, by the Finance Minister Nirmala Sitharaman. Experts largely feel this budget is special considering the country faced COVID-19 pandemic and expectations remain high to revive the economy faster though the slew of measures already announced by the government in last 10 months.
The focus could largely be on infrastructure, healthcare, agriculture (including doubling farmers income), rural economy, MSMEs, credit growth and sectors which impacted the most due to COVID-19-led lockdown restrictions. Given the job losses in lockdown, the job creation could also be the key point in the budget, hence the government could announce more such measures that can create maximum job opportunities going ahead. The fiscal consolidation path, the borrowing plan, the demand side measures, divestment plan and incentives for exports could be other points to watch out for in the budget.
"With all the speculation such as a one lakh crore rupee national bank for infrastructure financing doing the rounds, there is a lot of presumption and assumption. Ultimately the question remains - will the government contribute more towards infrastructure spending and do long term capex in order to revive the slouching growth or will it just create noise around growth by simply tweaking fiscal policies? Markets will be extremely disheartened if the government chooses the latter. But if the former is chosen, markets may climb near its previous highs," said Nirali Shah, Senior Research Analyst at Samco Securities.
The three-day meeting of Monetary Policy Committee, the panel which set the interest rate, will start on February 3 and conclude on February 5. The repo rate is expected to remain unchanged at 4 percent with the RBI continuing with accommodative stance, while the commentary (especially after Union Budget 2021) on economic growth and inflation along with measures that can help economic revival would be key things to watch out for.
The foreign investors turned net sellers on weekly basis for the first time since September last year, selling Rs 12,096.69 crore worth of shares in the week ended January 29 due to increase in dollar index and lack of positive triggers on the global front, after more than Rs 1.7 lakh crore of equity buying since last year.
On the other side, domestic institutional investors were net buyers on the weekly basis for the first time in last four months, net purchasing Rs 3,788.98 crore of shares last week.
Hence, the Street will closely watch the mood of FIIs and DIIs going forward.
Auto stocks, including Maruti Suzuki, Ashok Leyland, Escorts, Eicher Motors, Tata Motors, Hero Motocorp and Bajaj Auto, would be in focus on the first day of February as automobile companies will release their January sales numbers.
Experts expect the growth in passenger vehicle, medium & heavy commercial vehicle and tractor segments to continue, but 2-wheeler segment may be weak in January.
Economic Data Points
Markit Manufacturing PMI data for January and balance of trade data for December will be released on Monday, while Markit Services PMI for January will be announced on Wednesday.
The Markit Manufacturing PMI at 56.4 in December 2020 increased from 56.3 in previous month, indicating the continuity in business conditions improvement, while the Markit Services PMI at 52.3 in December declined from 53.7 in previous month, indicating the expansion continued for third consecutive month.
Foreign exchange reserves for the week ended January 29 will be announced on Friday.
Little more than 475 companies will release their earnings scorecard for the quarter ended December 2020. The prominent ones to watch out for would be HDFC, Bharti Airtel, Hero Motocorp, HPCL, State Bank of India, Britannia Industries, Mahindra & Mahindra, Divis Labs and NTPC.
Among others, Castrol India, Finolex Industries, Kansai Nerolac Paints, Balrampur Chini Mills, Dixon Technologies, Escorts, PI Industries, Tata Consumer Products, Adani Enterprises, Adani Green Energy, Apollo Tyres, Adani Total Gas, Indian Hotels, Inox Leisure, Jubilant FoodWorks, PNC Infratech, Thermax, Ujjivan Small Finance Bank, Adani Power, Bajaj Electricals, Container Corporation, Godrej Properties, Ipca Laboratories, REC, Tata Power, Trent, Zee Entertainment Enterprises, Ashoka Buildcon, Mrs Bectors Food Specialities, Cadila Healthcare, Gujarat Gas, Jubilant Life Sciences, Punjab National Bank, Affle (India), BHEL etc would also be watched.
Coronavirus and Vaccination
The COVID-19 recovery rate remains strong, improving further to over 97 percent and the positivity rate slipped to 1.58 percent. Active cases fell for 22nd consecutive day and increase in deaths below 200 for 17th straight day.
India reported total over 1.07 crore confirmed infections so far, of which over 1.04 crore patients already recovered with 1.54 lakh deaths. As a result, the active cases dropped to further around 1.7 lakh now.
The vaccination drive has been on a right path with more than 35 lakh frontline workers getting the first dose of vaccine since the launch on January 16.
Globally there are more than 10.22 crore confirmed infections with over 22 lakh deaths so far, while United States, Brazil, United Kingdom, Russia, France, Spain, Italy, Mexico etc continued to more cases on daily basis than India.
Technical View and F&O Cues
The Nifty50 fell more than 1 percent on Friday and lost over 5 percent for the week, forming bearish candle on the daily as well as weekly charts, which indicated that the short term trend of the market could be negative.
"The short term trend of Nifty continues to be weak. The negation of upside bounce attempt and the downside break of weekly support could signal more declines ahead for the Nifty," Nagaraj Shetti, Technical Research Analyst at HDFC Securities told Moneycontrol.
"The key economic event of Union Budget could play vital role to show the direction for the market. Any rise from here could encounter resistance around 13,750-13,800 levels. The near term downside targets to be watched for Nifty around 13,050 (20-week EMA) for the next few weeks," he said.
The option data suggested that the Nifty could trade in a wider range of 13,200 to 14,000/14,200 levels in coming sessions. Maximum Call open interest was seen at 14,500, 14,000 and 14,200 strikes, while the maximum Put open interest was seen at 14,000, 13,000 and 13,500 strikes.
Call writing was seen at 14,200, 14,000 and 14,100 strikes, while Put writing was seen at 13,100, 13,300 and 13,000 strikes.
"Ahead of the Union Budget, no major option concentration is visible in either Call or Put strikes. However, Put base for the February series is placed at ITM 14000 strike followed by 13500 strike. On the higher side, immediate Call concentration can be seen at 14500 strike for the monthly expiry," ICICI Direct said.
Moreover, volatility jumped to 25.34 levels at close on Friday, from 22.42 levels seen on previous Friday ahead of budget, due to selling pressure in emerging markets. The volatility needs to drop below 20 levels for market stability.
Here are key corporation actions taking place in the coming week:
Here are key global data points to watch out for next week: