Dalal Street Week Ahead | 10 key factors that will keep traders busy next week

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Dalal Street

Dalal Street

The surprised 40 bps increase in repo rate and 50 bps in cash reserve ratio by the Reserve Bank of India amid rising fear of aggressive rate hikes by the US Federal Reserve dampened the market sentiment in the week ended May 6 with the benchmark indices crashing over 4 percent.

Mixed set of corporate earnings, boiling oil prices amid fear of further tighter supply after European Union proposed ban on import of Russian oil within six months, and the warning by the Bank of England about risks of recession and inflation above 10 percent while raising interest rates to the highest level since 2009 also weakened the market.

The BSE Sensex plunged 2,225 points to close the week at 54,836, and the Nifty50 fell 691 points to 16,411, the lowest closing level since March 9, continuing downtrend for the fourth straight week.

Every key sector was under selling pressure. The broader markets also were also attacked by bears, as the Nifty Midcap 100 index corrected 4.3 percent, and Smallcap 100 index hit hard, down 6.8 percent.

The volatility is expected to continue in the coming week as well, with sentiment in favour of bears as the market will keenly watch the developments in Ukraine, inflation numbers from the US and China, India’s CPI inflation, corporate earnings and the IPO market action, experts feel. On Monday, the market will first react to Reliance Industries earnings.

“Markets are reeling under tremendous pressure and indications are in favour of further decline ahead,” Ajit Mishra, VP – Research at Religare Broking, said.

Most sectors as well as the broader indices are trading in sync with the benchmark, however, select stocks are still holding strong. “Since global cues are largely dictating the trend, we recommend focusing more on the overnight risk management and maintaining position on both sides,” Mishra said.

Here are 10 key factors that will keep traders busy next week:

Corporate Earnings

More than 300 companies will disclose their quarterly earnings scorecard in the coming week, including prominent names like UPL, Asian Paints, Cipla, Adani Ports, Larsen and Toubro, Tata Motors, Eicher Motors, State Bank of India and Tech Mahindra.

Among others, Vodafone Idea, Punjab National Bank, Bandhan Bank, Bank of Baroda, RBL Bank, Siemens, UCO Bank, Union Bank of India, Avenue Supermarts, CMS Info Systems, Godrej Agrovet, Infibeam Avenues, Vedant Fashions, PVR, Ajanta Pharma, Chalet Hotels, Gujarat Gas, Max Financial Services, Mahanagar Gas, MRF, Torrent Power, Birla Corporation, HSIL, Indian Bank, Petronet LNG, Aditya Birla Capital, Anupam Rasayan India, Apollo Tyres, Brigade Enterprises, Gujarat State Petronet, Honeywell Automation, Ujjivan Small Finance Bank, Windlas Biotech, CESC, Emami, Escorts, Nazara Technologies, Vakrangee, and Heranba Industries will also release quarterly earnings next week.

Primary Market Action

The primary market will be in full action next week with LIC closing its Rs 21,000-crore public issue on Monday, followed by the finalisation of its share allotment scheduled for Thursday. The offer was subscribed 1.66 times till Saturday, the fourth day of bidding.

Three initial public offerings will open for subscription in the coming week, with first being the retail wealth management services company Prudent Corporate Advisory Services that will be launched on Tuesday and the bidding will continue till Thursday, with a price band of Rs 595-630 per share. The bidding for anchor book will be opened for a day on Monday.

Click Here For All Live Updates on LIC IPO

Prudent is planning to raise Rs 538 crore by issuing 85.49 lakh shares through public issue, which is entirely an offer-for-sale by Wagner, an affiliate of the US-based private equity investor TA Associates, and selling shareholder Shirish Patel. The company has reserved shares worth Rs 6.5 crore for its employees who will get shares at a discount of Rs 59 per share to the final offer.

Stainless steel pipes and tubes maker Venus Pipes & Tubes will be another IPO that will open on Wednesday, which comprises a fresh issue of 50.74 lakh shares, with a price band of Rs 310-326 per share. The offer will close on Friday, while its anchor book, if any, will be launched for a day on Tuesday.

The Rs 5,235-crore IPO of logistics services provider Delhivery will also be opened for subscription during Wednesday-Friday, with a price band of Rs 462-487 per share. The bidding for the anchor book will take place for a day before the issue opening.

The public offer comprises a fresh issue of Rs 4,000 crore by the company, and the offer-for-sale by Deli CMF Pte Ltd, CA Swift Investments, SVF Doorbell (Cayman) Ltd, and Times Internet. Kapil Bharati, Mohit Tandon, and Suraj Saharan will also offload shares via offer for sale. This offer included a reservation of shares worth Rs 20 crore for its employees who will get shares at a discount of Rs 25 per share to the final offer price.

Campus Activewear, the leading sports and athleisure footwear brand, will make its debut on the BSE and the NSE on Monday, after it received robust response from investors with subscription shooting past 51.75 times during April 26-28.

Multi-speciality paediatric and gynaecology hospital chain Rainbow Children’s Medicare is another company that will list its shares on the bourses on Tuesday next week. The offer had received a decent response from investors, subscribing 12.43 times during April 27-29.

Economic Data Points

The fiscal deficit numbers for March 2022 will be released on Monday, while CPI inflation figures for the month of April and industrial output data for March will be announced on Thursday.

CPI inflation is the key factor to watch out for in the next week, especially after the RBI shifted its focus to inflation that was at 6.95 percent in March, and surprisingly hiked repo rate to 4.4 percent and cash reserve ratio to 4.5 percent last week.

Experts largely expect the CPI inflation print for April at 7.5 percent but the print beyond the same could dampen market sentiment.

“We expect CPI inflation to hit 7.5 percent, as rising motor fuel, other energy and food prices keep upward pressures elevated. While we see a possibility that April inflation could overshoot our forecast, we do not think such a trend will sustain,” Rahul Bajoria, MD and Chief India Economist at Barclays, said.

Apart from that, foreign exchange reserves for the week ended May 6, and balance of trade data for April will be released on Friday.

Ukraine War

The Ukraine-Russia war, which has entered the 11th week now, has created too much volatility in the equity market as well as in commodities markets. Hence, this is going to be a key factor to focus on by investors globally as unless and until Russia decides to take back its forces and stop attacks on Ukraine, the volatility will continue in equity markets as well as commodities, and also inflation remain in the fore, experts feel.

Russian forces, which already destroyed infrastructure in Kyiv and other cities in Ukraine, have continued missile attacks on southwestern port city of Odesa on Saturday, while Ukrainian military said Russian forces have begun to blow up bridges to slow a Ukrainian counteroffensive in the northeast. Further, Western officials warn Russian President Vladimir Putin could formally declare war on May 9 (Russia’s annual Victory Day), allowing him to step up his campaign. (CNN reported)

Britain is expected to provide a further military aid of $1.6 billion to Ukraine. The leaders of G-7 countries will have a virtual meeting with Ukrainian President Volodymyr Zelenskyy on Sunday, May 8.

Boiling Oil Prices

Elevated oil price remained another cause of concern for the equity market. Experts feel given the fear of tighter supply in coming period the oil prices are expected to stay on the higher side, which is a major risk for oil importing countries like India as it fuel inflation worries. The central banks have already started fighting inflation by raising interest rates and now last week the Reserve Bank of India also came into picture by giving a surprise repo rate and cash reserve ratio hike.

International benchmark Brent crude futures closed at $112.39 a barrel, up by 2.78 percent from $109.34 a barrel on week-on-week basis amid fear of supply tightness after European Union finally proposed a ban on import of Russian oil within six months. The prices remain above $100 a barrel for more than a month now.

Global Data Points

Globally, the US and China inflation numbers for the month of April on Wednesday will be closely watched by investors. Apart from that, here are other global data points to watch out for next week:

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FII Selling

Foreign institutional investors are relentless sellers for yet another month, given the increasing fear of faster policy tightening by the Federal Reserve to fight inflation which pushed US dollar index as well as bond yields higher. Hence, if the selling by FIIs sustain going ahead, then upside is likely to be remained capped. The Nifty50 index has not seen its record high, touched in October last year, in last six months.

The US dollar index, which measures the value of US dollar against basket of world’s six leading currencies, closed at 103.66 levels on Friday, up from 102.96 levels on week-on-week basis, while the US 10-year treasury yields rose to 3.13 percent, up from 2.93 percent on week-on-week basis.

FIIs have net sold Rs 12,700 crore worth of shares in the week ended May 6, continuing outflow for eighth consecutive month. However, DIIs have tried to offset some of those FIIs outflow by buying shares worth Rs 8,533 crore in the passing week. They have been net buyers since March 2021.

Technical View

The Nifty50 has formed Doji kind of pattern on the daily charts on Friday as the closing was near its opening levels but the index fell 1.6 percent to 16,411, while there was bearish candle formation on the weekly scale as the closing was lower than opening levels.

The charts indicated that bears have strong hold over Dalal Street as the index closed at lowest level since March 9 this year. Hence experts feel if the selling extends then 16,150-16,200 could be next logical target followed by 16,000 mark on the downside, whereas generally Doji formation after reasonable weakness indicates some bounce back which could be confirmed only if the index closes above 16,500 levels.

“The short term trend of Nifty continues to be negative,” Nagaraj Shetti, Technical Research Analyst at HDFC Securities said.

He further said having formed a Doji and unfilled opening downside gap signal a possibility of minor upside bounce from here or from the lows in the next 1-2 sessions. “Any upside from here could encounter strong resistance around 16,650 levels.”

However, eventually Nifty could decline from the highs and reach down to the next support of 16,200 levels in the near term, he said, adding the larger degree of lower tops and bottoms is on the cards, and present weekly chart indicate a possibility of new lower bottom formation below 15,671 levels in the coming few weeks.

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F&O Cues

On the option front, there was a maximum Call open interest at 17,000 strike followed by 17,400 & 17,500 strikes with Call writing at 17,400 strike then 16,700 & 16,500 strikes. On the other side, maximum Put open interest was seen at 16,000 strike followed by 15,500 and 16,400 strikes, with Put writing at 16,400 strike then 16,000 & 16,300 strikes.

The above option data indicated that there has been a shift in wider trading range of the Nifty to 16,000 to 16,700-16,800 levels due to higher volatility, from 16,400-17,000 earlier.

From a data perspective, “despite additions seen during the last week, Nifty near month futures open interest is still near one crore shares where FIIs have formed fresh shorts. Net short positions from FIIs have moved to their highest levels seen since March 2020. Hence, a bout of covering can be expected above 16,500 towards 16,800 levels,” ICICI Direct said.

Even from an options perspective, “significant Call writing is visible at ATM and OTM Call strikes with highest OI at 17,000 Call followed by 16,500 strike. Due to sudden declines, Put option positions are now stuck and no major Put base is visible at OTM strikes,” the brokerage said. Hence, from a short-term perspective, levels near 16,200 may act as support, it feels.

The volatility increased further to above 21 levels, which is discomforting bulls and pointing towards volatile swings, but having below 22 levels could indicate some bouts of recovery in coming sessions. India VIX, which measures the expected volatility in the market, jumped 9.4 percent to 21.25 levels.

“Volatility index has not increased drastically despite sharp declines and is still below 22 levels, suggesting a recovery may be seen in coming sessions,” said ICICI Direct.

Corporate Action

Here are key corporate actions taking place in the coming week:

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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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