Volatility remained high for the truncated week that ended October 27 amid whistleblower complaint against Infosys, Brexit concerns, Maharashtra and Haryana Assembly elections results, Supreme Court (SC)'s verdict on telecom AGR, and hits and misses in earnings season.
But, value buying in banks on improvement in asset quality and benign crude oil prices remained supportive for the market.
With the strong start to Samvat 2076 on October 27, Nifty50 trimmed its weekly loss to 0.3 percent and BSE Sensex to 0.12 percent. Both indices had gained over 4 percent in previous two weeks.
The broader markets closed the week in green as the BSE Midcap index gained 0.14 percent and smallcap index rose 1.4 percent.
The market is expected to remain volatile with a positive bias in coming holiday-shortened trading week with focus on next leg of corporate earning announcements, auto companies and US Fed rate decision, experts feel.
"Volatility is expected to prevail for short term with the overall market volumes showing a decreasing trend as further cues on Brexit and trade war will remain in focus. On a long term perspective, attractive schemes for consumers, boost from festive season and accommodative factors like fall in oil prices to provide positive momentum for Indian equity market," Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.
Ajit Mishra Vice President - Research at Religare Broking feels banking stocks, especially private banking majors, have the potential to push the benchmark higher from hereon as other sectoral heavyweights have played their part or are reeling under pressure. He suggests limiting leveraged positions and focusing more on risk management.
Here are 10 key factors that will keep traders busy this week:
We are in the middle of July-September corporate earnings season but most of major companies from the Sensex30 (including heavyweights) list already announced their numbers before Diwali.
Earnings season, so far, have been slightly better than analyst expectations with major banks showing improvement in asset quality and fall in slippages, auto and technology companies' were also in line backed partly by corporate tax reduction, which all suggested that the there could be good recovery in second half FY20, experts feel.
"Noticeable are better numbers by banking sector, providing a hope that India’s financial segment NPA problem is normalising. Q2 result for banking sector has been marginally better than expected due to base effect, reduction in provisioning & positive vibes over NPA resolution. The outlook for the future has improved led by increase in liquidity and cut in operational cost. The negativity is that slippage is still happening with stock specific issues," Vinod Nair, Head of Research at Geojit Financial Services said.
In the coming week, over 180 companies will announce their September quarter earnings including Bharti Airtel, Yes Bank, Dr Reddy's Labs, Indian Oil Corporation, Bank of India, Petronet LNG, Hindustan Zinc, Tata Global Beverages, GIC Housing Finance, JSW Energy, Escorts, etc.
It is one of the most important earnings to watch out for in coming truncated week, especially after majority of top banks already declared their numbers.
The private sector lender is likely to report loss in Q2FY20, with declining loan and deposits growth and deterioration in asset quality performance, according to brokerage houses.
"We expect outstanding loans to decline around 7 percent YoY and 6 percent QoQ. Deposits will decline 7 percent YoY and there is likely to be an increase in pressure on NIM. Revenue pressure will also remain high due to weak fee income (sharp decline). We expect asset quality ratios to see further deterioration (lumpy corporate exposure)," said Kotak Institutional Equities which sees loss at Rs 1,262.4 crore, NII declining 25 percent YoY, pre-provision operating profit falling 50 percent YoY for the quarter.
Bharti Airtel, country's third largest telecom operator by subscriber base, is expected to report more than Rs 1,300 crore loss in quarter ended September 2019 with sequential decline in India wireless business and 2-3 percent QoQ fall in ARPU but this could be a steady quarter for its Africa segment, brokerages said.
"We expect a 1.5 percent QoQ decline in India wireless revenues partly due to the seasonal weakness. EBITDA for the segment will likely be down 5.5 percent QoQ. We are building a 3.3 percent QoQ decline in average revenue per user (ARPU) to Rs 127 per month," said Kotak Institutional Equities which expects loss at Rs 1,329.3 crore for the quarter.
The brokerage expects a steady quarter for the Africa business with 2.5 percent QoQ growth in revenues and marginal uptick in EBITDA margin sequentially.
Fed Rate Decision
Globally key thing to watch out for would be the conclusion of two-day meeting of US Federal Reserve on midnight of October 30.
Largely, expectations are that there could be a cut in interest rate by 25bps to a range of 1.5-1.75 percent to support economy from uncertainties and economic slowdown caused by US-China trade war.
Bank of Japan would also be announcing its monetary policy on October 31.
Hence, the commentary by both central banks would be a key monitorable as any hawkish tone would impact sentiments globally, Amit Gupta said.
As the futures & options contracts are due for expiry on coming Thursday, the market could see some volatility with a positive bias during the week. Current Option data suggests the Nifty could be in the trading range of 11,450 to 11,750 levels in coming days.
Maximum Put open interest was seen at 11,000 followed by 11,500 strike while maximum Call open interest was seen at 12,000 followed by 11,700 strike. Call writing was seen at 11,600 then 11,550 strike while Put writing was seen at 11,500 then 11,550 strike.
"Despite the sharp fall on the last day of the week, the Nifty found support near 11,500 and managed to end near 11,600. However, Call open interest additions were seen in 11,800 strike, which will be key target levels on the upside in the settlement week. At the same time, the highest Put base is placed at the 11,500 strike making it an important support in the ongoing series," Amit Gupta of ICICI direct said.
Rollover action among technology and banking stocks will be closely watched as stocks from both these sectors have seen significant short additions in the last few weeks, he added.
With most results from heavyweights already over, he expects volatility to cool down further. India VIX fell to 15.31 levels from around 18 touched during the series.
Apart from earnings, October auto sales will be key thing to watch out for in coming week on November 1. After the double digit decline in September sales, analysts will see how the festive season worked out for automobile companies especially after increase in footfalls and inquiries for vehicles.
Whether the substantial increase in discounts before and especially after cut in corporate tax rate helped them to boost weakened demand or not will also be seen in their sales performance.
Hence, Maruti Suzuki, Tata Motors, TVS Motor, Eicher Motors, Mahindra & Mahindra, Ashok Leyland, Bajaj Auto, Hero MotoCorp etc, which recovered sharply after cut in corporate tax rate, will be in focus towards later part of the week.
US-China Trade and Brexit
Globally any developments over US-China trade and Brexit issues will be closely watched by market players as they need more clarity after recent actions.
US and China have been working to resolve their trade issues as trade tariffs have begun to hurt their economies however a comprehensive deal is unlikely in the near term because of the wide differences between the two. US-China tensions over Hong Kong has added to uncertainty about deal.
Hence, "investors would track the US and Chinese President’s meeting in Chile during Asia-Pacific meeting wherein they could agree the first phase of the trade deal," Gupta said.
On Brexit front, UK Prime Minister Boris Johnson has reworked the terms of Brexit deal with the European Union but is yet to get it approved through the UK Parliament.
With October 31 deadline closing in, the most likely outcome is a possible extension of Brexit deadline which could be as long as three months (i.e. January 2020). Brexit concerns may continue to be weigh on UK and European economies.
Also British Prime Minister Boris Johnson on October 25 told opposition leader Jeremy Corbyn to "man up" and accept a snap election as EU members delayed a decision on how long to postpone next week's Brexit deadline. He hopes that election will give him a majority to pass the divorce deal he struck with EU leaders last week, but there could be a struggle for him to get majority in favour of election.
The Nifty formed bearish candle on weekly charts after two bullish candle in previous two consecutive weeks.
But the index has been stuck in the range of 11,500-11,700 levels which is expected to remain in coming truncated week as well and overall the trend is likely to be in favour of bulls while the volatility is likely to be lower as most of top companies announced their earnings, experts feel.
"Strong support for Nifty is coming near 11,500-11,450 levels and strong resistance is coming near 11,650-11,700, any decisive breakout above 11,700 zone can see quick move towards 12,000 mark," Rohit Singre, Senior Technical Analyst, LKP Securities told Moneycontrol.
Amit Shah, Technical Research Analyst with Indiabulls Ventures also said 11,450 zone is the near term support zone for the index and dips towards the support zone should be utilized to build long positions. "Broadly the undertone continues to remain positive and the post-consolidation index is likely to head higher. Index may test all-time highs before the calendar year," he added.
Corporate Action and Macro Data
Here are all corporate actions taking place in coming week:
On the macro data front, government budget value and infrastructure output for September will be announced on October 31 while Markit Manufacturing PMI for October and foreign exchange reserves data for week ended October 25 will be released on November 1.
Here are key global data points to watch out for: