Dalal Street This Week | 10 key factors that will keep traders busy

The market clocked 1.68 percent gains in the week ended September 2 after three weeks of consolidation, backed by declining oil prices, consistent foreign inflows and rally in global markets later in the week. All the sectors, barring auto, participated in the market run-up, with IT, infrastructure, banks, and metals being the biggest gainers rising 2-3.5 percent.

The BSE Sensex climbed nearly 1,000 points to 59,793, and the Nifty50 rose close to 300 points to 17,833, while the broader markets also traded in line with benchmarks, in fact outperformed the benchmarks. The Nifty Midcap 100 and Smallcap 100 indices climbed 2 percent and 3.3 percent respectively.

The market is expected to extend the current uptrend this week but volatility can’t be ruled out amid global macro environment, with focus on monthly inflation numbers in India and the US, and oil prices, experts said.

“The direction of the market in the week ahead will be determined by cues from the global markets as well as important macroeconomic data points,” Vinod Nair, head of research at Geojit Financial Services, said.

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

1) Inflation

The key data point to watch out for next week would be consumer price index (CPI) inflation numbers for August on Monday, especially ahead of the monetary policy meeting scheduled to be held towards the end of this month. Experts largely expect numbers around previous month levels, and if that comes true then the central bank may adopt a calibrated approach towards policy tightening. In July, CPI inflation was 6.71 percent.

Also read – Poll | Retail inflation may rise to 6.9% in August, July IIP growth may tumble to 4.1%

“We estimate headline CPI inflation to remain relatively steady at 6.7 percent year on year in August, as a sequential rise in food prices was mostly offset by a modest decline in core CPI,” Rahul Bajoria, managing director and chief India economist at Barclays, said.

As inflation eases, Barclays expects the monetary policy committee to opt for a calibrated approach to rate tightening.

In addition, industrial production data for July will also be released on Monday, while wholesale price index (WPI) inflation for August will be announced on Wednesday, which experts expect at around 13 percent for the month against 13.93 percent in July.

Foreign exchange reserves for the week ended September 9 will be released on Friday, while balance of trade data will be announced on Thursday.

2) US Inflation

Another important data point that global markets will keep an eye on would be US inflation numbers on Tuesday, especially ahead of the Federal Reserve policy meeting on September 20-21.

The data point will decide how the Federal Reserve will act on further rate hikes. As per a recent speech by Fed Chair Jerome Powell, which was largely hawkish, there could be another 75 basis point hike in interest rates in the upcoming policy meeting and the Federal Reserve is expected to continue policy tightening to bring inflation around its two percent target, experts said.

The US inflation in July dropped to 8.5 percent from more than 40-year high of 9.1 percent recorded in the previous month.

3) Other Global Data Points

Here are key global data points to watch out for next week:

4) Oil Prices

Oil prices falling below $90 a barrel during the last week due to fears of weakening demand amid policy tightening and Covid curbs in China caused a rally in equity markets. But later on Brent crude futures settled the week at $92.42 a barrel as supply threats supported prices.

Also read – Commodities traders may shift focus to China’s industrial production & retail sales, US inflation

If the prices stabilise below $100 a barrel and correct further in coming weeks, that could support equity markets, experts said. Generally any fall in oil prices is always beneficial for oil importing countries like India.

5) Indian Rupee

The correction in oil rates and further buying by foreign institutional investors (FIIs) helped the Indian rupee appreciate against the US dollar from its recent record low, but experts feel that could be temporary and the currency could weaken to 81-82 levels in the coming weeks.

The rupee settled at 79.67 against the US dollar, against 79.72 a dollar week-on-week, but it strengthened by 49 paise from weekly low.

“FIIs have been buyers and positive momentum in the capital market especially in the financial sector provided strong support to the rupee. The overall hang of recessionary US Fed’s rate hikes and Reserve Bank of India’s rate hikes can result in continued rupee weakness,” Jateen Trivedi, VP research analyst at LKP Securities, said.

6) Consistent foreign inflows

Continued buying by FIIs for another month also lifted market sentiment. And if the flow continues then the rally may continue in benchmark indices and broader markets, experts said.

FIIs net bought little more than Rs 6,100 crore worth of shares during the passing week. In September so far, they have net bought Rs 3,837 crore worth of shares on top of Rs 22,000 crore of buying in the previous month.

However, domestic institutional investors (DIIs) have utilised the opportunity to take money off the table by selling Rs 352 crore worth of shares.

“If the flows from FIIs remain supportive then our market is likely to head towards new highs soon,” Santosh Meena, head of research at Swastika Investmart, said.

7) Technical View

The Nifty50 has formed a bullish candlestick pattern on weekly charts and formed a small-bodied bullish candle on the daily scale. The index has seen a breakout of its small downward sloping resistance trend line adjoining August 19 and September 6. Hence, if there is further buying then that could take the Nifty50 beyond the psychological 18,000 mark but with choppy trade, experts said.

“The buying in financial & IT counters provided credence to the move and adds conviction to retest the recent psychological level of 18,000 in the week beginning Monday. If global peers support it, we will not be surprised to see it extending towards 18,200 – 18,350 levels,” Sameet Chavan, chief analyst-technical and derivatives at Angel One, said.

He advised traders to continue their recent ‘buy on declines’ strategy and use decline towards the support zone of 17,675 – 17,500 to add fresh longs.

8) F&O Cues

Option data indicated that Nifty50 is expected to trade in the range of 17,500-18,000 levels in the immediate term.

We have seen maximum Call open interest at 18,000 strike, which could be near term resistance, followed by 19,000 strike, with Call writing at 19,000 strike then 17,900 & 18,000 strikes, while the maximum Put open interest was seen at 17,000 strike, followed by 17,500 & 17,700 strikes, with Put writing at 17,000 strike then 17,900 and 17,700 strikes.

“The Nifty has respected its highest Call base and settled near these levels on weekly expiry. However, unlike the last couple of weeks, Put writing has gathered steam but Call writing is still relatively higher for the coming weekly settlement suggesting there may be some consolidation before a fresh upside move,” ICICI Direct said.

Till the Nifty does not move below 17,500, the positive bias may continue and 18,300 levels are likely to be seen in coming weeks, the brokerage feels.

The volatility index India VIX cooled down by 9.36 percent to 17.72 levels during the week, making the bulls more comfortable at Dalal Street. Further fall in volatility could bring more stability in the market, experts said.

9) Primary Market Action

Tamilnad Mercantile Bank will make its debut on bourses on Thursday after finalising the issue price at Rs 525 per share. The company will finalise the share allotment on Monday.

Precision bearing cages manufacturer Harsha Engineers International will launch its initial public offering on September 14 and the IPO will close on September 16, with a price band of Rs 314-330 per share.

10) Corporate Action

Here are key corporate actions taking place in the coming week including Bajaj Finserv which is going to be ex-bonus as well as ex-split on Tuesday, and GKP Printing which too will be trading ex-bonus from Friday.

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