The market registered a strong run in the week that ended on April 30, majorly due to liquidity after global central banks announced stimulus measures.
The progress in COVID-19 vaccine, hopes of a bigger fiscal stimulus from the government, expectations of a decline in daily novel coronavirus cases in the United States and Europe, and partial reopening of economic activity also lifted the mood at Dalal Street.
The BSE Sensex and Nifty50 gained nearly 8 percent each, taking the total April month's gains to more than 14 percent. The broader markets underperformed frontliners with the Nifty Midcap and Smallcap indices rising 6.35 percent and 3 percent, respectively.
However, the coming week is unexpected to be the same as there could be a knee-jerk reaction on May 4 (Monday) to weak global cues amid fears of another United States-China trade war and disappointing HUL earnings.
Overall, the week is expected to be volatile. Experts feel that the market will start reading the extended lockdown and its impact. There is likely to be some stock-specific action due to earnings.
"Markets are also expected to keep an eye on long awaited stimulus package as well as mutual fund investors' behavior on the inflows and outflows from D-Street. Volatility will remain higher in the coming week and a lot of volatility is expected in small and midcap stocks, although they will face selling pressure at higher levels," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.
"Earnings results have been subdued so far, as expected, with investors more interested in the commentary and outlook rather than the previous quarter numbers. This will drive stock / sectoral specific moves in the market for the next week also," Vinod Nair, Head of Research at Geojit Financial Services said.
Here are 10 key factors that will keep traders busy this week:
US-China trade war again?
US President Donald Trump has threatened China with imposition of new tariffs on import of Chinese products, over China's handling of the COVID-19 pandemic.
US has recorded the highest number of COVID-19 infections and deaths. The outbreak was first reported in China in late 2019.
If there is a trade war, it would be closely watched by the markets globally. The relationship between the two countries is already fragile. Hence, the markets are expected to see some correction on May 4, experts feel.
US markets and Britain's FTSE had already reacted on May 1, falling 2-3 percent. SGX Nifty was down nearly 500 points on May 1.
"United States has been believed that the China has initiated this virus mess. It is not only US but most of other countries also have same thought. So we will have global impact if the actual trade war starts again," Ajay Jaiswal, President, Strategies & Head of Research at Stewart & Mackertich told Moneycontrol.
Possibility of a COVID-19 vaccine after emergency USFDA nod to Gilead's drug?
The progress of Gilead Sciences' Remdesivir, an antiviral drug, in treatment for COVID-19 patients, lifted the global sentiment last week.
Over the weekend, the drug received emergency use authorisation (EUA) from United States Food and Drug Administration (USFDA) to treat COVID-19 patients with severe symptoms only, though there was no filing of formal new drug application, review and approval process for this drug.
Hence, the drug's progress from here will be closely followed globally.
If the drug proves to be successful in the coming days in treating COVID-19 virus patients, there could be stability in the market, experts feel.
COVID-19 to remain in the news
Countries have started thinking about re-opening their economy to some extent. Some countries including India and the United States have already reopened partially.
But, with the number of infections rising every day, the outbreak remains a major concern.
Globally, there have been over 34.2 lakh confirmed cases of COVID-19. At least 2.43 lakh people have died so far. The United States, Spain, Italy, France, Germany and the United Kingdom are the most-affected countries.
In India, there have been at least 37,776 known cases of COVID-19 and 1,223 deaths so far.
These numbers continue to rise. Hence, complete re-opening of the economy will take more time.
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The Centre has extended the nationwide lockdown by two more weeks to May 17. However, it has eased restrictions in non-hotspot areas.
There are 130 'red zones' in the country which include major cities like Mumbai, Delhi, Pune, Chennai, Hyderabad, Bengaluru and Kolkata, which are important areas for the economy.
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This will not be a heavy earnings week as there are only around 24 companies that will announce their quarterly results, including only two BSE Sensex firms (ICICI Bank and HCL Technologies). Only 10-odd companies from BSE Sensex have announced their earnings so far.
Among others, Marico, Adani Ports, Varun Beverages, Persistent Systems, SBI Life, Yes Bank, Kansai Nerolac Paints and Cyient, etc. will declare their quarterly earnings this week.
ICICI Bank and HCL Technologies
ICICI Bank, the country's second largest private sector lender by assets, is expected to register more than four-fold increase in Q4FY20 profit due to low base in year-ago period and lower provisions. Double digit growth in NII, other income and pre-provision operating profit may also boost profitability.
Net interest income growth is likely to be around 15 percent YoY on improving net interest margin and around 12 percent growth in advances. Brokerages largely expect stable asset quality.
Meanwhile, HCL Technologies may report marginal QoQ decline in Q4 profit while rupee revenue may grow more than 2 percent sequentially. As the company said there was little impact of COVID-19 in March quarter. The full year constant currency revenue growth guidance of 16.5-17 percent implied constant currency revenue of 0.3-2 percent QoQ in March quarter.
Brokerages largely expect constant currency revenue growth in the range of 0.6-0.9 percent QoQ, whereas EBIT may see some pressure despite rupee depreciation, due to lower billing and decline in utilisation.
Every brokerage including Sharekhan feels the company may avoid giving FY21 revenue growth guidance due to macro uncertainties.
Indian Rupee and oil prices
The Indian Rupee appreciated by 173 paise in last seven consecutive sessions from 76.83 to 75.10 levels on April 30, largely due to a rally in the equity markets, progress in the COVID-19 vaccine, reduced FII selling and easing of lockdown restrictions.
Experts have raised doubts over sustainability of rupee recovery due to likely weakness in economy and earnings.
"There is still risk of a second wave of infection and India's macros are not attractive enough to bring in heavy dollar inflows. Thus, going ahead USD/INR spot may trade above the support of 74.50 towards 75.50/76.00," Rahul Gupta, Head of Research-Currency at Emkay Global told Moneycontrol.
Meanwhile, oil prices recovered sharply by more than $6 a barrel during the week gone by to close at $26.44 a barrel on the Brent crude futures, while WTI crude also jumped to $19.69 after falling below zero level in previous week, but experts expect the limited recovery further given the lockdown in major parts of the world.
"We believe any recovery in Brent should be limited towards $30 and any meaningful upside should be seen only after revocation of lockdown going on across the globe," Amit Gupta of ICICI Direct said.
Technical view
The Nifty50 closed higher by 3.2 percent on April 30, 7.7 percent for the week and 14 percent in April, forming bullish candle on daily, weekly and monthly charts. After consolidation in the range of 8,800-9,300 levels, the index has broken its resistance of 9,400 and decisively crossed 9,800 during the week to close at 9,859.90.
Experts feel that the index has to hold 9,400 and move closer to 10,000 mark then only bullish momentum can be sustained, but if it breaks 9,400 then there could be selling pressure.
"The index has recently completed its 38.20 percent retracement of entire fall from 12,430 to 7,511 mark and now key hurdle is 50 percent retracement at 9,970 levels. It has to hold above 9,400 zone to witness an upmove towards 9,889 then 9,970 levels while downside key support exists at 9,250 then 9,000 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.
F&O cues
The May series of F&O contracts will begin on May 4. The April series data indicated that rollover in Nifty50 as well as Bank Nifty was higher than its 3-month average while there was short covering and formation of some fresh longs. India VIX or Volatility index fell 13 percent to close at 34 levels during the last week.
Since it is the beginning of the May monthly series, open interest activity was scattered at various strikes. Maximum Call open interest was placed at 9,500 then 10,000 strikes while maximum Put open interest was at 9,000 then 8,500 strikes. There was no meaningful writing on Call side while decent Put writing was seen at 9,500 and 9,000 strike. Option data indicates an immediate trading range in between 9,000 to 10,000 levels, experts feel.
"Volatility has also declined towards 30 percent, which is quite noticeable as it has declined from elevated levels of 85% in March. Further cool-off in volatility would be a key trigger for the Nifty to surpass 10,000 levels," Amit Gupta of ICICI Direct said.
The positional support for the Nifty remains at 9,000, which is the major Put base for the May series, he added.
Corporate action and macro data
Here are key corporate actions taking place in the coming week:
The board meetings of Shriram City Union Finance, Punjab & Sind Bank and NHPC will be held on May 4, 5 and 6 respectively, to consider fund raising plans.
On the macro front, Markit Manufacturing and Services PMI data for April will be released on May 4 and May 6, while foreign exchange reserves for week ended May 1, and bank loan and deposit growth for fortnight ended April 24 will be announced on May 8.
Global cues
Here key global data points to watch out for next week:
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