The final result of five state elections will be announced on December 11, which will give a clear direction to the market ahead of next year general elections
The Sensex registered spectacular returns last week as well as the month gone by, rising 3.5 percent and 5 percent, respectively. A global rally after the Federal Reserve said it is unlikely to aggressively hike interest rates going forward, easing fiscal concerns after crude oil prices fell below $60 a barrel and rupee gaining past 70 to the dollar lifted investor sentiment.
Renewed FII buying, hopes of easing trade tensions, likely status quo by the Reserve Bank of India in its forthcoming policy meeting and relaxation norms for non-banking financial companies (NBFCs) by the central bank aided last week's rally that was backed by banking and financials, FMCG and IT stocks.
Leading benchmark indices are expected to consolidate after the recent rally in coming sessions and lower-than-expected Q2 GDP growth, but the momentum may remain positive. Experts said the rally from hereon is depend upon RBI policy statement on December 5 and the exit poll results from the recently held state elections which will be announced immediately after voting in Rajasthan on December 7.
"The recent rebound is a reflection of the improvement in the macro environment and supportive global markets. However, we have a list of important events, both on the domestic and global front, which may derail this momentum," Jayant Manglik, President, Religare Broking, told Moneycontrol.
Vinod Nair, Head of Research, Geojit Financial Services, is optimistic given that FIIs have turned positive on the domestic market, oil prices have fallen into bearish territory and appreciation in the rupee.
However, some experts remained cautious citing the big divergence between benchmark and broader indices. The broader markets underperformed frontliners in the week gone by as Nifty Midcap and Smallcap indices gained 0.9 percent and 0.2 percent, respectively.
"Participation is largely restricted to index majors, while broader market indices are still reeling under pressure, which indicates indecision. We suggest maintaining a positive yet cautious approach and preferring hedged trades," Manglik said.
Here are 10 key things that will keep traders busy in this crucial week:Trade war talks
Chinese President Xi Jinping and US President Donald Trump put their bilateral trade war on pause momentarily, striking an agreement to hold off on slapping additional tariffs on each other's goods after January 1, as talks continue between both countries
The White House said the US will leave existing tariffs on $200 billion of Chinese goods at 10 percent and refrain from raising that rate to 25 percent as planned on January 1. In exchange, the US wants an immediate start to talks on Chinese trade practices like intellectual property theft, non-tariff barriers and cyber theft.
After 90 days, if there’s no progress on structural reform, the US will raise those tariffs to 25 percent, White House Press Secretary Sarah Huckabee Sanders said in a statement.
Monetary Policy Committee meet
The crucial Monetary Policy Committee's three-day meeting will start on December 3 and the decision will be announced during market hours on December 5.
Most analysts expect the RBI to maintain status quo on repo rate as well as cash reserve ratio given that inflation is under control. The central bank is likely to pause for the rest of FY19 but will be watching core inflation closely.
"The MPC is likely to keep the repo rate and CRR unchanged, while maintaining its stance of 'calibrated tightening', and will continue to use open market operations, forex spot intervention and longer-tenure term repos to calibrate overall liquidity," Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities, told Moneycontrol.
Much of the decline and stability in headline retail inflation has been on the back of food prices, which has remained soft due to a combination of structural and cyclical factors.
"While we believe that the RBI will likely pause for the rest of FY19, it is likely to remain watchful on any upside risks to inflation emanating from global and domestic factors such as: 1) Minimum support prices; 2) Reversal in crude oil prices; 3) Volatility in global financial markets; 4) Adverse implications from fiscal slippage; and 5) Staggered impact of house rent allowance increases by states and its second-round impact," Rakshit said.OPEC meet
Russia and Saudi Arabia have agreed to extend production cuts into 2019, although both countries have yet to agree on any fresh output cuts. Russian President Vladimir Putin announced the extension after a meeting on December 1 on the sidelines of the G20 meet with Saudi Arabian Crown Prince Mohammed bin Salman.
The comments could open the door for a deal at the meeting of the Organisation of Petroleum Exporting Countries scheduled for December 6 in Vienna.
Crude oil is a key part of India's import bill as it imports around 80 percent of its oil requirement. Whether to cut supplies would be a key decision at the meeting, given the over 30 percent fall in Brent crude oil prices in the last two months from $86.29 a barrel to around $58 a barrel on oversupply and temporary easing of sanctions on Iran by the US.
The market expects OPEC to reduce its oil production by 1-1.4 million barrels per day to offset an emerging supply glut and on global growth slowdown worries. "If the OPEC cuts production by at least 1 mbpd, then we can expect a relief rally in crude oil towards $55-57 per barrel. Else, the downtrend in crude oil will continue towards $40-44 per barrel," Sakina Mandsaurwala, Commodity Analyst at Narnolia Financial Advisors, said.Rupee
The rupee gained past 70 against the dollar for the first time since August, led by a sharp fall in oil prices, which resulted in easing of fiscal concerns and trade war tensions. From the lows of 74.49 per dollar touched in October, it has appreciated 6.6 percent to 69.58 a dollar.
The rupee movement will be closely watched by the street, especially after the MPC and OPEC meet.
The dollar is trending lower against major global currencies and was also hit by Federal Reserve Chief Jerome Powell's statement regarding the neutral interest rate.
"The rupee is expected to remain (strong) supported in the backdrop of lower oil prices. A decline in the dollar would be a double bonanza for emerging market currencies, including the rupee. It may test 69.10 levels in the near term if the dollar declines this week after the G20 meeting," ICICI Direct said.Rajasthan and Telangana elections
On the domestic front, the major event to watch out for would be the exit poll results of the recently held state elections that will be announced immediately after voting in Rajasthan and Telangana ends on December 7. Polling, so far, has taken place in three states: Mizoram, Chhattisgarh and Madhya Pradesh.
The final results will be announced on December 11 will give a clear direction to the market ahead of next year's general elections.Macro data
The Nikkei manufacturing and services PMI for November will be released on December 3 and December 5, respectively. Foreign exchange reserves for the week-ended November 30 and deposit and bank loan growth for the fortnight-ended November 23 will be announced on December 7.Auto sales
Auto stocks will be in focus on December 3 as they react to their November sales data announced on December 1.
Sales came in mixed as Maruti Suzuki, the country's largest car maker, reported a 0.7 percent year-on-year decline in sales to 1.53 lakh units on lower exports and muted domestic growth.
Mahindra & Mahindra's total sales increased 17 percent YoY to 45,101 units in November due to the commercial vehicle segment that reported a whopping 26 percent growth, but passenger vehicle sales growth was just 1 percent.
Escorts continued to deliver strong sales as it sold 8,005 units in November, up 56.4 percent YoY.Technical outlook
The Nifty rallied 3.3 percent last week to close near 10,900 on short covering, clearing all near term hurdles and making itself ready for the psychological 11,000 levels. The index formed a bullish candle on the weekly charts, which indicates that the bulls have a tight grip on Dalal Street.
Last week's consistent upside, underperformance in broader markets and many events lined up in the coming week will make traders cautious. Experts feel markets could consolidate, followed by either an upside or downside in the later part of the week.
"We expect the Nifty to find support near 10,750 on any intermediate decline. It should move above the 11,000 Call base in coming days," ICICI Direct said. The options build-up at 10,500 Put is the highest in December series, while Call writing is still not increasing, showing signs of resilience in the market, it added.
According to Stewart & Mackertich, which has advised a buy-on-dips strategy, the broader trading range for the Nifty in coming week is expected to be 10,750-11,100.
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