Ajit Mishra of Religare Broking advised traders to focus on the selection of stocks and managing overnight risk.
Equity benchmark indices recouped most of previous week's losses and gained more than 3 percent in the truncated week that ended on October 1 despite continued FII selling. Second fiscal stimulus hope, positive global cues, guidelines on Unlock 5.0 and better auto sales data lifted sentiment.
The BSE Sensex jumped 1,308.39 points or 3.50 percent to close at 38,697.05 and the Nifty50 rose 366.70 points or 3.32 percent to 11,416.95. The broader markets also joined the bulls' party as the Nifty Midcap and Smallcap indices gained 3.7 percent each.
Considering the strong rally last week, there could be some profit-booking in coming days, but overall the momentum may remain in favour of bulls unless there are any disappointments over expected second stimulus, Supreme Court verdict on interest waiver case and September quarter earnings.
"The next week marks the beginning of earnings season. Besides, news related to COVID-19 and updates on the US Presidential election will also be closely tracked," Ajit Mishra, VP - Research at Religare Broking told Moneycontrol.
"The rebound in banking and financials is a welcome relief as other sectors, by and large, are performing well. Though the bias has again shifted in favour of bulls, we suggest maintaining a positive yet cautious approach, considering the recent volatility and upcoming events," said Mishra who advised traders to maintain their focus on the selection of stocks and managing overnight risk.
Here are 10 key factors that will keep traders busy next week:
The euphoria created by the hope of fiscal stimulus is expected to maintain in coming weeks too as experts feel the government needs to come out with a package of the size of around 2 percent of GDP to sustain the current pent-up demand. If the package fails to meet Street expectations, then there could be some profit-booking, they said.
"The economy needs direct cash benefit, free food and high government spending, given the lack of private sector expenditure. The concern is that given the feeble fiscal position and high borrowings, the amount of stimulus could be below the estimate. After the strong recovery, the sustenance of the rally will depend on the assurance and size of stimulus in India & overseas," Vinod Nair, Head of Research at Geojit Financial Services.
Supreme Court Verdict on Interest Waiver Case
The announcement of Supreme Court on the interest waiver case on October 5 is also a key event to watch out for in the coming week as it is expected to decide the trend in banking stocks and market. Banking and financials have a major weight in benchmark indices, hence any disappointment over the verdict could spoil the sentiment, experts feel.
On October 3, the Central government told Supreme Court that it would waive interest on the repayment of loans of up to Rs 2 crore, which is a big relief for individual and MSME borrowers. But this would amount to a burden of Rs 6 lakh crore for banks.
"If the banks were to bear this burden, it would necessarily wipe out a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark on their survival," the ministry said in the affidavit.
"On October 5, SC is expected to provide a waiver on the compounding of interest, including benefit to small borrowers. The question for banks is to know how big is the impact and who will bear it? Banks will expect the government to take the burden as it will impact their profitability and depositors," Vinod Nair said.
Donald Trump Health and US Fiscal Stimulus
The rising hope for another round of fiscal stimulus is expected to decide the trend in US equity and faith of economic recovery. The Wall Street as well as global markets are closely watching the Congress decision whether they can agree on the package in the coming week given the disappointing September jobs data, though that seems to be doubtful ahead of US Presidential elections, experts feel.
Federal Reserve Chairman Jerome Powell's earlier comments clearly indicated that another round of stimulus package is a need of the hour to boost the US economy. Experts feel the likely big stimulus package in the Euro region also seems to be on hold due to US elections.
US President Donald Trump and Melania Trump testing COVID-19 positive during the passing week is also likely to create volatility in coming days as investors will closely watch his health updates considering the US elections ahead.
India reported more than 65 lakh confirmed infections with over 1 lakh deaths, so far, but the improving recovery rate week-after-week along with falling mortality rate seems to be a sigh of relief, which could be supporting the market, experts feel.
The recovery rate was nearly 84 percent on October 4 (improving from 82.2 percent last week) and the mortality rate was around 1.56 percent against 1.58 percent last week.
The street expects the vaccine finalisation in the first quarter of 2021 as globally few companies are currently in Phase II and III of clinical trials. Hence, the developments related to COVID-19 and vaccine will be closely watched going forward.
Angel Broking Listing
Angel Broking, one of the largest retail broking houses, is going to debut on bourses on October 5. The issue price is fixed at Rs 306 per share, the higher price band.
Given the nearly 4 times subscription to the IPO, whether it will list in premium or discount will be keenly watched.
The Nifty50 climbed 1.5 percent on Thursday and 3.3 percent for the week, forming bullish candle on the daily as well as weekly charts. Interestingly, the index is also trading above 20 DMA, 50 DMA, 100 DMA, and 200 DMA on daily as well as weekly time frame which is a clear sign that prices are in complete control of bulls.
"Strong buying will emerge on a decisive trade above 11,630 levels which is the previous three week's high. At the same time, Nifty has managed to close above Inverse Head and Shoulders neckline and target as per the pattern is 11,800, which can be achieved with ease until it is trading above 11,150 levels," Shabbir Kayyumi, Head of Technical Research at Narnolia Financial Advisors told Moneycontrol.
Price Momentum Indicator (PMI) has given bullish crossover with its average and as long as it in buy mode, one can maintain buy on dip strategy, he advised.
The option data indicated that the wider trading range for the Nifty could be 11,000-11,800 and the immediate trading range could be 11,200-11,600 levels.
Maximum Call open interest was seen at 11,500 followed by 12,000 strike, while maximum Put open interest was seen at 10,500 followed by 11,000 strike. Marginal Call writing was seen at 11,400 and 11,700 strike while Put writing was seen at 11,400 then 11,000 strike.
"For the coming week, no major Call option positions are visible and maximum writing was seen at 11,200 and 11,300 strikes suggesting immediate support for the index. The relative Call option positions are visible at 11,500 strike above which the Nifty may attempt to test its previous highs of 11,800," ICICI Direct said.
Volatility has moved to 18.35 levels after testing 23 in the penultimate week. The brokerage believes that positive bias may continue in the broader markets till volatility does not move above 22 levels.
Here are key corporate actions taking place in the coming week:
On the economic data front, Markit Services PMI for September will be released on October 6, while deposit and bank loan growth for fortnight ended September 25, and foreign exchange reserves for week ended October 2 will be announced on October 9.
Apart from speech by Federal Reserve Chairman Jerome Powell and ECB President Christine Lagarde, here are key global data points to watch out for next week: