Dalal Street – Crude oil price movements, global trends, and quarterly profits will drive the Indian equity markets this week.
Even as the earnings season is playing out to script, global macroeconomic factors could linger a while. The US 10-year yield touched 5 percent as the Fed looks to extend its monetary tightening. For India, the bigger worry could be a spike in crude price if the Middle East tension continues to be on the boil
Markets closed lower in the week gone by, with Nifty closing down 1.06 percent this week as it battled multiple global factors including tension in the Middle East, spike in the crude prices and rising bond yields in the US.
The Nifty50 closed down 208 points to 19,542 while the BSE Sensex was down 885 points to 65,397. Among the broader indices the BSE Smallcap Index ended on a flat note, while the BSE Midcap and Largecap indices fell 1 percent each.
Even as the earnings season is playing out to script, the aforementioned factors could linger a while. The US 10-year yield touched 5 percent as the Fed looks to extend its monetary tightening. For India, the bigger worry could be a spike in crude price if the Middle East tension continues to be on the boil.
“The varied results of blue-chip companies, influenced by subdued global & domestic demand, are steering the market towards a consolidation trajectory in the near term,” Vinod Nair, Head of Research at Geojit Financial Services said.
While bank stocks could be in the limelight as most major private banks declared their Q2 results over the weekend, these are factors to watch out for in the coming week:
Fed chair speech
Fed Chairman Jerome Powell on October 26 could set the cat among the pigeons, the same day as US Q3 GDP advance estimates, if he reiterates there could be another rate hike in the pipeline. For investors, this implies that it could be well into next year before rates start cooling off. The current rate stands at 5.25-5.50 percent and investors are building a pause in their projections.
The US economy continues to throw up a strong print and inflation risks continue to be elevated as witnessed in the US 10-year yield flirting with the 5 percent mark, a level last seen in July 2007 just before the credit crisis in 2008.
Third week of earnings
Dalal Street will enter third week of earnings with almost 250 companies set to report their September quarter numbers. From the trend so far, analysts have observed that banks are continuing their streak of improving asset quality and strong profit growth while pain persists in IT. FMCG majors have also disappointed the Street with topline and bottomline not meeting analyst estimates.
Going ahead, we are set to see more numbers from the automobile sector. Index heavyweight Reliance Industries will also report its numbers on October 27. Apart from that, other Nifty 50 companies like Axis Bank, Tech Mahindra, Asian Paints, Maruti Suzuki, Bajaj Finserv, SBI Life, Cipla, Dr Reddy’s and NTPC will also declare results. Check Moneycontrol Results Calendar
ECB rate decision
On October 26, investors will also be focused on the European Central Bank’s Governing Council meeting. In their September meeting, policy rates were raised by 25 basis points to 4 percent with the following assurance, “The key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”.
However, the current geopolitical tensions have thrown a spanner in the works of every major central bank. With crude prices rising, it is crucial to monitor how ECB reacts now.
Domestic Economic Data
There seems to be no let up in IPO momentum and the new week has its fair share across the mainboard as well as the SME platform. New IPO openings include Blue Jet Healthcare (October 25-27) with an issue size of Rs 840 crore on the mainboard. SME IPO openings include that of On Door Concepts (October 23-27), Paragon Fine and Specialty Chemicals (October 26-30), Shanthala FMCG Products (October 27-31) and Maitreya Medicare (October 27 – November 1).
Companies that will be listed in the coming week include IRM Energy (likely on October 26) on the mainboard and Arvind and Company Shipping Agencies (October 25) and WomanCart (October 27) on the SME platform.
Fii Flow
Foreign institutional investors have continued their selling spree in October with a sell figure of Rs 13,411.72 crore through 20th in the cash market. “FPIs have been selling across the board in sectors like financials, power, FMCG and IT. Selling was subdued in automobiles and capital goods. They were buyers in telecom,” Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said.
“If the safest asset class in the world, the US bond, yields around 5 percent it is rational for FIIs to take out some money. It is important to note that the FII selling is not large. This means, when the tide turns, capital outflows will be reversed,” he added. Thus, it will be crucial to monitor FII activity in the coming week.
Oil Prices
For the week, both Brent and WTI crude contracts rose over 1 percent, a second straight weekly jump. Prices maintained momentum on the back of continuing tension in the Middle East, Saudi Arabia’s decision to extend its voluntary output cuts, and the US’ plan to replenish its strategic petroleum reserve.
Saumil Gandhi, Senior Analyst – Commodities, HDFC Securities, said, “We believe crude oil prices in the short term will remain volatile amid the war in the Middle East. From a technical perspective, crude oil supply is likely to be seen near the 7580 zone, while the 7225 acts as a good demand area. NYMEX WTI crude oil has resistance at $91.50 and support at $87.80.”
Technical View
The Nifty50 has formed Doji candlestick pattern on the daily charts on Friday as the closing was similar to opening levels, indicating the bulls and bears are indecisive about the further market direction, while on the weekly charts, the index has formed bearish candlestick pattern with upper shadow, but maintained higher highs, higher lows formation as well as previous week’s low of 19,480, which is expected to be crucial for the coming week too. If the index breaks the same support decisively, then 19,300, the low of current month can’t be ruled out but holding of the support can take the Nifty50 towards 19,700-19,850 area again, experts said.
“Markets are likely to remain sideways to volatile in the coming week within a wider range of 19,300-19,850,” Arvinder Singh Nanda, Senior Vice President at Master Capital Services said.
He feels a breakout in either direction within this range has the potential to trigger a significant move, possibly spanning 200 to 400 points in one direction.
Indian F&O Cues
The Options data also indicated that 19,500 is expected to be key level for the market downside, while the hurdle on the higher side will be 19,600-19,800 area.
On the monthly Options front, the maximum Call open interest was visible in 20,000 strike, followed by 19,800 & 19,600 strikes, with meaningful Call writing at 19,600 strike, then 19,700 & 19,500 strikes, while the maximum Put open interest was at 19,000 strike, followed by 19,500 & 19,400 strike, with Put writing at 19,400 strike, then 18,700 strike.
“Strong Call writing was observed at 19,600 Strike while a decent amount of put writing was observed at 19,500 Strike, keeping the Nifty rangebound,” Ashwin Ramani, derivatives & technical analyst at SAMCO Securities said.
“The level of 19,500 is a key support level for Nifty. A break below 19,500 can lead to initiation of fresh shorts which can take the Index until 19,400 levels,” he added.
IPO this week
IPO momentum continues this week across the mainboard and SME platform. Blue Jet Healthcare (October 25-27) is a new mainboard IPO with Rs 840 crore. On Door Concepts (October 23-27), Paragon Fine and Specialty Chemicals (October 26-30), Shanthala FMCG Products (October 27-31) and Maitreya Medicare (October 27-November 1) are SMEs with IPOs.
IRM Energy will likely be listed on the mainboard on October 26 and Arvind and Company Shipping Agencies and WomanCart on the SME platform on October 25 and 27.
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