Volatility may continue due to lack of positive triggers in the domestic market while rising oil prices will impact domestic macros in the near term, Vinod Nair of Geojit Financial Services said.
After consolidation, the benchmark indices shed 2 percent in the passing week as bears took the charge of Dalal Street. Mixed Q3 earnings leading to likely further earnings downgrades with an outflow from FIIs and higher crude oil prices weighed on market sentiment.
The real impact of muted earnings was seen in broader markets as the BSE Midcap and Smallcap indices remained in a bear trap, falling 3 percent each on top of 2 percent correction in the earlier week.
In the coming week, the pullback may be likely (especially on February 18 following a positive close on Wall Street on February 15), but there could be more consolidation due to a lack of major domestic and global cues, experts said. They added that the rangebound move would continue for next few weeks on caution ahead of Lok Sabha polls in April-May.
While advising to keep a cautious approach in the markets and prefer hedged positions, Jayant Manglik, President at Religare Broking told Moneycontrol that after corporate earnings failed to trigger any directional move, now all eyes are on the trade talks between the US and China.
On the local front, indications are in the favour of further fall, he said, adding Nifty has next crucial support at 10,500 while in case of bounce 10,800-10,850 would act as a hurdle.
In the coming week, RBI's board meet and GST council meet will remain on the participants' radar, he said.
"Volatility may continue due to lack of positive triggers in the domestic market while rising oil prices will impact domestic macros in the near term," Vinod Nair, Head of Research at Geojit Financial Services said.
Here are 10 key things that will keep traders busy this week:
RBI's board meet
The Reserve Bank of India's (RBI's) board will be meeting on February 18 in New Delhi, which would be the first meeting after the Interim Budget 2019-20 presented on February 1.
The customary post-Budget board meeting, which will also be addressed by the finance minister, will also likely discuss the government's request for payment of interim dividend for 2018-19.
GST Council meet
The meeting of Goods and Services Tax (GST) Council will be held on February 20 amid heightened expectations that it will slash tax rates for the real estate sector. The council will take up recommendations of a group of ministers (GoM) headed by Gujarat Deputy Chief Minister Nitin Patel.
The GoM has favoured a cut in GST rates for under construction properties to 5 percent without an input tax credit from 18 percent and to 3 percent for affordable housing category projects from the existing 8 percent. There is also speculation that a rate cut on cement, which currently attracts 28 percent GST, could be discussed.
Crude oil prices and rupee
After hitting the lowest level of around $50 a barrel (in December) since July 2017, Brent crude futures - the international benchmark for oil prices - gradually inched up and gained more than 31 percent. In the week gone by, prices increased by 6.7 percent to close at $66.25 a barrel.
Hence, the oil prices will be closely watched by the street as any further rise would raise not only fiscal deficit concern but also impact corporate earnings and rupee.
The Indian rupee on the week gained 9 paise but during the week it fell from 70.71 a dollar (on February 12) to 71.22/$ (on February 15) followed by a consistent appreciation of 109 paise for six consecutive sessions.
FII and DII Flow
Foreign institutional investors were net sellers to the tune of more than Rs 1,700 crore during the week, though they are net buyers, so far, in February.
However, domestic institutional investors including mutual funds continued to lend support to the market as they were net buyers not only for the week but also for the month.
"Domestic retail inflation in January declined to 2.05 percent, which has further raised hopes that the central bank may further cut rates to support growth in the backdrop of muted inflation. We expect the rupee to trade in the range of 71.60 – 70.90 during the week," Amit Gupta of ICICI Securities said.
Some companies are yet to announce their earnings for the October-December period, though the majority of earnings season is over. About 20 companies, as per BSE website, will declare their quarterly numbers this week.
In the coming week, the market is not going to take any cues from macro data, as there would not be major data announcement as such.
Only India's Foreign Exchange Reserve data for the week ended February 15, 2019, would be released on February 22.
Last week, the market breadth was largely in the favour of bears and selling pressure was witnessed in every sector. The Nifty50 fell from 10,943.60 (February 8's closing) to 10,724.40 in the week gone by, losing 219 points.
"Market is trading below its three major simple moving averages 20 DMA, 50 DMA and 200 DMA which are placed between 10,820-10,850 levels, suggesting strong resistance zone on the higher side," Shabbir Kayyumi, Head - Technical & Derivative Research at Narnolia Financial Advisors told Moneycontrol.
He said a majority of the momentum oscillators are in oversold zone creating the possibility of a bounce back.
"The Nifty witnessed a continuous decline from 11,100 to 10,600 within six sessions. The index may witness short covering if these levels (10,600) are finally held. Since the start of 2019, the Nifty has been finding value buying from these levels," Amit Gupta of ICICI Securities said.
He believes that if the Nifty is able to hold above 10,600, a broader market recovery may be seen, to some extent.
"In such a scenario, sectors that have seen major short rollovers into the February series could see covering. This includes auto and cement stocks. Long positions in private banking and technology stocks are still intact," he said.
India VIX moved up by 5.72 percent to 16.46 levels in the last week while Put Call Ratio (PCR) fell from 1.59 to 1.30 levels.
The spurt in VIX with a decline in PCR OI suggests that supply pressure is intact in the market at every important resistance zones, experts said.
On the options front, maximum Put open interest (OI) is at 10,700 followed by 10,400 strike while maximum Call OI is at 11,000 followed by 10,900 strike. Maximum Put writing is at 10,300 followed by 10,500 strike while Call writing is at 10,700 then 10,800 strike.
"Option band signifies a lower shift in the trading range in between 10,600 to 10,900 zones," Chandan Taparia of Motilal Oswal said.
Corporate Action and Board Meetings