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The market corrected for the third consecutive week ended August 11, though it traded within the previous week’s long range. The RBI’s decision to raise its full-year inflation projection has heightened the likelihood of additional momentum in the rate-cut trajectory extending into FY25. The announcement of a 10 percent incremental Cash Reserve Ratio (CRR) for banks, coupled with lacklustre global cues and continued foreign institutional investor (FII) outflows, exerted downward pressure on market sentiment.
Going into the next week, the market on Monday will first react to industrial production numbers for June, while overall, the consolidation is expected to continue with a focus on monthly CPI and WPI inflation numbers, and FOMC minutes, experts said.
The BSE Sensex dropped nearly 400 points to 65,323, and the Nifty50 declined 89 points to 19,428, dented by banking & financial services, and FMCG stocks, but the buying in technology, metal, oil & gas, pharma, and select auto stocks capped downtrend.
“In the absence of any major trigger and uncertain global cues, we expect the market to consolidate in the range,” Siddhartha Khemka, Head – Retail Research at Motilal Oswal Financial Services said.
He feels the market would trade cautiously ahead of India’s inflation data. On account of the Independence Day holiday on Tuesday market might remain lacklustre, he says.
The market will remain shut on August 15 for Independence Day.
Here are 10 key factors to watch out for next week:
CPI Inflation
Amid rising inflation concerns, the market participants will closely monitor the CPI data for July due on August 14, which is expected to surpass 6 percent threshold set by the RBI due to high vegetable prices, against 4.81 percent in June. The RBI on August 10 already raised current financial year inflation forecast to 5.4 percent from 5.1 percent and also revised numbers higher for Q2 and Q3FY24 quarters.
“We estimate that CPI inflation rose to 6.3 percent YoY in July, on a spike in perishable vegetable prices, led by tomatoes. Underlying core inflation remains broadly contained, but we expect the RBI to remain cautious and keep policy rates on hold,” Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays said.
WPI inflation for July will also be announced on the same day, while Balance of Trade data for July will be released on August 15. Foreign exchange reserves for week ended August 11 will be released on August 18.
FOMC Minutes
Globally investors will closely read the forthcoming FOMC meeting minutes, releasing on August 16, which could provide insights into the rationale behind the July policy decision. In the July policy meeting, the Federal Reserve raised the fed funds rate by 25 bps, with a hint of one more rate hike in the rest of the year.
“Presently, the markets remain cautious due to conflicting statements from Fed policymakers, which have clouded the outlook on monetary policy,” Ravindra Rao of Kotak Securities said.
Global Economic Data Points
Further, on the global front, traders will also closely monitor US retail sales data next week after a modest 0.2 percent increase in June, along with China’s retail sales and industrial production figures for July, and monthly inflation numbers by Europe, United Kingdom and Japan.
Here are key global economic data points to watch out for next week:
Indian Rupee
We also need to monitor the currency movement next week as the Indian rupee depreciated near 83 a dollar and closed at 82.85 on Friday, the highest ever closing low on a weekly basis. Higher oil prices, FII outflow, and cautious global risk sentiment weighed on the currency. Moody’s placed 6 large US banks on rating review and downgraded 10 smaller banks also spoiled the sentiment.
“Over the coming week, we expect the rupee to trade an 82.60-83.25 range with a depreciating bias. Break of 83 could trigger stops-losses,” IFA Global said.
FII Flow
The FII also played pivotal role in the correction of Indian equity markets as they remained net sellers since the last week of July. If the selling shows consistency, then the equity markets could see more downfall in coming weeks, experts said.
FIIs have net sold Rs 4,700 crore for the passing week, turning net sellers on a monthly basis (over Rs 7,500 crore) for the first time in August after buying in previous five months. However, domestic institutional investors have managed to compensate to some extent, by buying Rs 2,224 crore worth of shares during the week.
Oil Prices
We have seen an upward journey in oil prices for seventh consecutive week, backed by supply tightening and record demand forecast. International benchmark Brent crude futures rose to $86.81 a barrel, up 0.66 percent during the week. The rising oil prices is always a risk for oil importer like India, but experts expect the possibility of technical correction in the prices in the coming days given the consistent rise in the recent past, before continuation of further rally.
Technical View
The Nifty50 has formed bearish candlestick pattern with minor upper shadow on the weekly scale, making lower highs for third straight week, but broadly traded within previous week’s range. The Nifty50 has taken a support at upward sloping support trendline on closing basis, which is crucial to watch next week. After breaking of the same, the index can find support at 19,300-19,000, followed by 18,850-18,900 area, whereas on the higher side, 19,650-19,700 is expected to be critical hurdle, experts said.
“Definitely there is a sign of weakness in the index for the short term and index could extend its correction but we believe that the downside in the market would be limited,” Vinay Rajani, CMT, senior technical and derivative analyst at HDFC Securities said.
F&O Cues
On the Option front, we have seen the maximum Call open interest at 19,600 strike, followed by 19,500 strike, with meaningful Call writing at 19,500 strike, then 19,800 strike. On the Put side, the maximum open interest was at 19,400 strike, followed by 19,500 strike, with writing at 19,400 strike, then 19,300 strike.
The above data indicated that 19,300-19,600 is expected to be a trading range with support-resistance for the Nifty in coming days.
“Both the Nifty and Bank Nifty index continues to face sell off and this trend will continue to be so for the coming week as well,” Rahul Ghose, Founder & CEO of algorithm-powered advisory platform Hedged said.
He feels Nifty will find it difficult to close past 19,650 easily. The maximum pain for the Nifty index is currently at 19,500 levels and this would be a popular choice as well for a short straddle for the coming week seeing the texture of open interest, he advised. Short straddle includes one short Call and one Short Put of the same strike and expiry date.
The India VIX has broadly been in the range of 10-12 levels for several weeks now, but after hitting historic closing low in last week of July, it has seen upward trend in following two weeks with 14 percent rally. Hence, whether the fear index sustains the upward journey going ahead will be key to watch.
IPO
We will continue to see lot of action in the primary market with polymer-based molded products maker Pyramid Technoplast opening Rs 153-crore public issue on August 18, while TVS Supply Chain Solutions will close its Rs 880-crore IPO on August 14. Further, SBFC Finance and Concord Biotech will make their debut on the bourses on August 16 and August 18, respectively, as per IPO schedule.
In the SME segment, Shoora Designs will open its Rs 2-crore issue for subscription on August 17, while Bondada Engineering and Crop Life Science will launch on August 18. Shelter Pharma will close its offer on August 14, while Yudiz Solutions, and Sangani Hospitals will debut on the NSE SME on August 17, while Srivari Spices and Foods, too, will list on the NSE SME on August 18.
Corporate Action
Here are key corporate actions taking place in the coming week:
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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