Week Ahead: Earnings kick off, as IPO mania continues; top factors that could drive market

Indian markets climbed the wall of worries after the Reserve Bank of India (RBI) kept key rates on hold and raised 2HFY18 inflation projection to 4.2 percent-4.6 percent which minimizes the probability of a further rate cut in the calendar year 2017.

The central bank also lowered FY18 GVA growth by 60 bps to 6.7 percent from 7.3 percent on the back of slowing 1QFY18 growth, lower food grains production forecast, the adverse impact of GST on investments and weakening of sentiment across consumer and business.

A part of analyst community feels that the rate easing cycle might have come to an end. Investors should avoid the duration trade in the backdrop of worsening fiscal and bond supply-demand dynamics.

“The policy was in line with expectations and we reiterate our stance that we are close to the bottom of rate easing cycle. The 10-year G-sec yield rose 6 bps to breach 6.7 percent for the first time since May 2017,” Somnath Mukherjee, Managing Partner, ASK Wealth Advisors told Moneycontrol.

“We maintain our view that bond yields will trade in a range of 6.25 percent-6.75 percent with an upward bias on account of 1) rising fiscal slippage, 2) bottoming of inflation, 3) worsening bond demand-supply dynamics, 4) slowing FII debt inflows and 5) tightening of global rates,” he said.

Going forward, as earnings season kicks off, the Street will watch out for cues from this front along keeping an eye on economic data such as IIP and CPI inflation. On the global front, the market will keep an eye on the ongoing tensions between US and North Korea and the release of FOMC’s meeting minutes.

Earnings

Earnings season for the quarter that ended on September 30, 2017 will kick off in the upcoming week. Over 30 BSE companies will be declaring their earnings and the list includes big names such as TCS, Reliance Industries, Kotak Mahindra Bank, South India Bank, IndusInd Bank, Cyient, and Bajaj Corporation, among others.

This quarter becomes crucial for India Inc as experts believe GST and demonetisation’s impact should start waning from this season. Any recovery here could set the course for the market, going forward. Having said that, there is a section of market voices that believe that earnings growth will continue to be evasive in the current quarter, but the second half of the fiscal will be a better one.

“The market is likely to remain volatile for a while. Going into the September quarter there is not much hope of a recovery in this quarter. That leads the market to think in 2 ways -- the earnings estimate number for the end of the year which is close to 16-17 percent will get delivered when you get over 20 percent growth in next 2 quarters,” said Tushar Pradhan, Chief Investment Officer, HSBC Asset Management (India) Private Ltd said in an interview with CNBC-TV18.

GST

The Street could react to the latest developments that took place on the GST front post market hours on Friday. The Goods and Services Tax (GST) Council on Friday cut rates on 27 items and 12 services, and approved sweeping changes in rules to soothe frayed nerves of millions of small enterprises and exporters that have been battling with procedural irritants, delayed refunds and technical glitches on returns filing. The Finance Minister Arun Jaitley-headed panel pushed for big changes in its 22nd meeting to iron out rough edges of the new tax system that has been hit by multiple pain points since it was rolled out on July 1.

The Council relaxed return filing rules for small and medium enterprises (SMEs), deferred the controversial reverse charge mechanism (RCM) till March 31, 2018, and hastened tax refunds for exporters battling cash crunch. Jaitley said that the annual turnover threshold on the composition scheme has been raised from Rs 75 lakh to Rs 1 crore.

IPO

Two new initial public offerings (IPOs) will hit the primary market along with an ongoing one.

Indian Energy Exchange and General Insurance Corporation of India will open their issue for the market. While the former will see its issue hit the market on October 11, 2017 and the latter will be open on October 13, 2017.

Indian Energy Exchange has set a price range of Rs 1,645-1,650 per share for its initial public offering that opens on October 9, to raise up to Rs 10.01 billion (USD 152.9 million), according to a public notice on Friday.

General Insurance Corporation of India (GIC Re) has been valued at Rs 80,000 crore (considering the upper band for the issue) for its upcoming initial public offering (IPO) that opens on October 11 and closes on October 13. With a Rs 11,370 crore IPO (USD 1.7 billion), this will be the second biggest in the country after Coal India (2010). The IPO consists of a primary issue of 17.20 million equity shares by GIC Re and offer for sale of 107.50 million equity shares by the government. GIC Re is a government-owned reinsurance company. The price band for the issue is Rs 855 to Rs 912.

Meanwhile, MAS Financial Services, whose IPO opened on Friday will continue with its issue. It was subscribed 30 percent on Day 1.

Corporate Action

Among corporates, Shilpa Medicare could be on investors’ radar after it received the establishment inspection report (EIR) for Jadcherla manufacturing unit in Telangana. The unit was inspected by US FDA between July 24 and 28.

Additionally, companies such as Zee Entertainment, Shoppers Stop, and MindTree will also be tracked by investors. Zee Entertainment announced the acquisition of 100 percent equity stake in 9X Media for a cash consideration of Rs 160 crore.  Meanwhile, Shoppers Stop has announced its exit from Duty Free airport retail business. It sold its 40 percent shareholding in Nuance Group (India) To Nuance Group AG, Switzerland for Rs 6 crore.

Apart from these developments, the Street could keep an eye on stock-related developments. Stocks such as Heritage Foods and Can Fin Homes will be having a stock split from a face value of Rs 10 per share to Rs 2 per share. On the other hand, Karur Vysya Bank will have a rights issue in the ratio of 1:6 at a premium of Rs 74.

Economic Data

The government next week will announce economic data such as index of industrial production (IIP) as well as CPI inflation. Manufacturing output, CPI and IIP data is expected on Thursday, October 11.

After lesser than expected GDP data and a weaker growth forecast, these data points become very crucial for the Street to take cues.

Global signals

Among larger global cues would be the minutes of the meeting held by the Federal Open Market Committee (FOMC). As such the US central bank has hinted at a rate hike this year, but the minutes would put further clarity on the direction which the bank is going to take, going forward.

Additionally, Japan would be declaring core machinery data, while US is set to declare core PPI data MoM and YoY basis. Additionally, US would also announce retail sales and CPI data.

Although this factor is already being considered by the Street, tensions between North Korea and US could also be in focus. Most recently, US President Donald Trump announced that the current situation was the calm before the storm.

Monsoon

A large part of the rally in the summers was on the back of hopes of good monsoon. While the country saw decent progress during monsoon, at the closure of the season, the country is set to see lower than expected rainfall.

The rainfall for southwest monsoon is 5 percent less than normal. “The distribution has been uneven, with excess rains in some parts and shortage in several other areas like Uttar Pradesh, Haryana, Punjab, Madhya Pradesh and parts of Maharashtra,” The Indian Express reported.

Technical View

After bullish momentum was seen on the Nifty in the past week, experts anticipate the move to continue as well.

“It appears that Nifty50 registered a fresh breakout (on Friday) as bulls unleashed their energy levels with a strong bull candle of around 1 percent gain. Friday’s price behaviour tilted the scales in favour of bulls and they can be expected to cruise their journey towards next logical target of 10080 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

HDFC Securities, in its report, said that Nifty as per daily and weekly timeframe is in an upside bounce and this upmove is expected to continue for the next 1-2 weeks.

“Nifty is currently facing resistance around 10,000 levels and any declines from here are expected to hold and the market is likely to form near-term higher lows during its upmove,” the report added.

Having said that, the important support of 9700-9685 levels is not likely to hold for long and could eventually be broken on the downside decisively, the report added.

F&O data

On Friday, maximum Call open interest (OI) of 40.83 lakh contracts stands at strike price 10,000, which will act as a crucial resistance level for the index in the October series, followed by 10,100, which now holds 36.62 lakh contracts in open interest, and 9,900, which has accumulated 33.10 lakh contracts in OI. Call writing was seen at strike prices 10,100 (1.82 lakh contracts were added), followed by 10,400 (1.56 lakh contracts added), and 10,500 which added 0.34 lakh contracts.

Call unwinding was seen at strike price 10,000, which shed 6.93 lakh contracts, followed by 9,800, which shed 3.57 lakh contracts and 9,900, which shed 3.27 lakh contracts.

Meanwhile, maximum Put OI of 53.66 lakh contracts was seen at strike price 9,800, which will act as a crucial base for the index in October series, followed by 9,900, which now holds 45.59 lakh contracts and 9,700, which has now accumulated 42.32 lakh contracts in open interest.

Put writing was seen at strike prices 9,900 (11.48 lakh contracts added), followed by 10,000 (8.19 lakh contracts added) and 9,800 which saw an addition of 6.79 lakh contracts. Put unwinding was seen at strike prices 9,600 (1.65 lakh contracts shed), followed by 10,400 (0.46 lakh contracts shed), and 10,500 (0.4 lakh contracts shed).