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

The bear attack in last three trading sessions has wiped out all the previous week’s market gains and benchmark indices ended with more than 1.5 percent loss for the week ended September 16. Rising expectations of aggressive rate hikes from the US Federal Reserve in the upcoming policy meetings to tame inflation, spike in US dollar index and bond yields, and selling by foreign institutional investors (FIIs) pulled down the market.

Technology was the biggest loser, falling seven percent followed by auto, FMCG, oil & gas, pharma, and realty stocks, but banks and metals stocks bucked the trend.

The BSE Sensex plunged more than 950 points to 58,841, and the Nifty50 fell a little more than 300 points to 17,531, while the Nifty Midcap 100 index fell 1.7 percent and Smallcap 100 index slipped 1.2 percent.

Volatility and consolidation are expected to continue in the coming week, with focus on the Federal Reserve policy meeting and global cues, in the absence of domestic cues, experts said.

“Markets have shown tremendous strength so far amid global turmoil, however, the lingering fear of aggressive rate hikes by the US Fed has capped the upside and also triggered intermediate declines. The prevailing market structure combined with cues from the US markets is pointing towards further fall,” Ajit Mishra, vice president, research, Religare Broking, said.

He feels market participants should stay light and maintain positions on both sides.

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

1) Fed Meet

Globally all eyes are on the outcome of the two-day Federal Reserve policy meeting scheduled to be announced on September 21 followed by a press conference. Investors largely expect a 75 basis point hike in interest rate by Federal Open Market Committee, which is largely priced in by equity markets globally, given the elevated inflation in August at 8.3 percent though it eased from 8.5 percent in previous month, but if there is 100 bp hike then that could dampen equity markets sentiment, experts said, adding the focus will also be on economic projections.

“It is increasingly evident that the US Fed will need a more aggressive path of interest-rate hikes, seeing how deeply entrenched inflation has become in their economy. Inflation stems from an overheating labour market, unsustainably strong wage growth, and higher food prices,” Sonam Srivastava, founder of Wright Research, said.

But all is not lost, there are mixed numbers. Job growth numbers are still robust. The market could see a much clearer picture in the coming months, she feels.

2) US dollar and bond yields started reacting by rising

The US dollar index surpassed the 110 mark, the highest since 2002, ahead of US inflation numbers, though later cooled down below the same level in the later part of the week, while US 10-year treasury yields inched closer to 3.5 percent (the highest since 2011), up from 3.00 percent in the last one month, ahead of the US Federal Reserve policy meeting. Hence, the movement in both segments will be closely watched.

“As long as the Fed keeps hiking rates, we can expect the dollar to keep getting stronger as people hoard the greenback. The 10-year US bond yields have touched 3.5 percent, and two-year US bond yields have touched 3.8 percent, which was last seen in 2007. This is a knee-jerk reaction to rate hike expectations,” Srivastava said.

3) FII Flow

Apart from this, institutional flows will also be an important factor to watch out for as foreign institutional investors were net sellers in the last three days amid rising US dollar on fears of aggressive policy tightening by Fed. Even domestic institutional investors also showed similar trend in the last week.

FIIs have net sold Rs 1,900 crore worth of shares and domestic institutional investors (DIIs) offloaded shares worth Rs 2,900 crore in the week gone by, which kept the market subdued.

4) Global Economic Data Points

Apart from Fed meet, the Bank of England and Bank of Japan will announce their interest rate decision on Thursday.

5) Oil Prices

Oil prices continued to trade below $100 a barrel throughout this month and fell below $90 a barrel as well, amid fears that aggressive interest rate hikes can impact global growth and weaken oil demand outlook. Analysts expect oil prices to fall further in coming weeks given rising recession and slowdown fears in western nations.

International benchmark Brent crude futures fell 1.6 percent to $91.35 a barrel, continuing downtrend for third consecutive week. Also International Energy Agency expects almost zero growth in oil demand in the last quarter of this calendar year due to weakening China demand, which also weighed on prices.

6) Economic Data Points

Bank loan growth and deposits growth data for the fortnight ended September 9 will be released on coming Friday. There was 15.5 percent growth in bank loan and 9.5 percent rise in deposits in the previous fortnight.

Foreign exchange reserves for the week ended September 16 will also be released on Friday. Forex reserves in the previous week ended September 9 fell $2.23 billion to $550.87 billion.

7) Technical View

The Nifty50 has seen formation of Dark Cloud Cover if we see the candlestick patterns of the last three trading days, while there was Bearish Engulfing kind of pattern formation on the weekly scale. Also the index has seen a breakdown of support trendline adjoining lows of August 29, September 7 and September 14.

Hence, largely both patterns are indicating bearish trend in the index in coming sessions with crucial support around 17,400 where the bullish gap was created on August 30, and breaking of the same can pull the index around recent low of 17,166 levels, experts said.

“Nifty is currently placed at the support of 17,450-17,500 levels, which is previous swing lows and also a trend line support (connected from previous higher bottoms). This support is expected to be broken on the downside soon,” Nagaraj Shetti, technical research analyst at HDFC Securities, said.

Hence, he feels the short term trend of Nifty seems to have reversed down. The formation of bearish candlestick pattern on daily and weekly charts indicates more weakness ahead for the market. The next lower levels to be watched are around 17,200-17,150 in the next couple of weeks. Any upside from here could find resistance around 17,700 levels, the market expert said.

8) F&O Cues

The Option data indicated that the Nifty50 may move in the range of 17,300-17,800 levels in the immediate term, while the broader trading range could be 17,000 to 18,000 levels, experts said.

We have seen maximum Call open interest at 18,000 strike, which is expected to act as a crucial resistance, followed by 18,500 strike with Call writing at 17,700 strike followed by 17,800 & 17,600 strikes. The maximum Put open interest was seen at 16,500 strike, followed by 17,500 & 17,000 strikes, with Put writing at 17,600 strike then 16,500 strike.

“If we look at derivative data then the Put-Call ratio has slipped to an oversold level of 0.76 therefore there is a probability of a bounceback from the 17,500-17,300 zone. Short positions of FIIs in the index future are also at the low level of 28 percent, therefore we have a scope of short covering,” Santosh Meena, head of research at Swastika Investmart, said. Put-Call ratio was 1.1 on previous Friday.

9) India VIX

Volatility inched higher and moved closed to 20 levels, making bulls uncomfortable and indicating more volatility in coming sessions. Unless it falls below the crucial 18 mark, stability in the market is unlikely, experts said.

India VIX, which measures the expected volatility in the market, rose 11.85 percent during the week to 19.82 levels.

10) Corporate Action

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

Stocks like Bajaj Holdings & Investment, Maharashtra Scooters, Bharat Bijlee, Pfizer, and MCX India will start trading ex-dividend next week, while eClerx Services, Choice International, Alphalogic Techsys, IFL Enterprises, Shubham Polyspin, Ruby Mills, and JMD Ventures will go ex-bonus.

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