In the week ending on May 19, the benchmark Nifty 50 briefly surpassed the 18,400 mark but ultimately closed 0.6 percent lower at 18,203. The Sensex also experienced a decline of 0.48 percent, settling at 61,729.
Among the sectors, Nifty Realty and Nifty IT emerged as the top gainers, showing increases of 1.3 percent and 1 percent, respectively. On the other hand, Nifty Pharma and Media faced the most significant losses, with declines of 2.9 percent and 2.1 percent, respectively.
The broader markets, represented by Nifty Midcap 100 and Nifty Smallcap 100, managed to register minor gains during the past week.
In positive news for the domestic economy, India’s Wholesale Price Index (WPI) inflation for April recorded a decrease of 0.92 percent, marking the first time it turned negative since July 2020. However, despite this development, the sentiment surrounding the Nifty remained below the 18,400 level.
These two factors are likely to continue influencing the market movement in the upcoming week. Let us now explore other elements that will play a role in determining the market’s trajectory.
1. FOMC Minutes
The minutes of the May policy meeting of the Federal Open Market Committee (FOMC) are set to be released on May 24. This release will provide insights into the discussions and decisions made by the US Federal Reserve regarding its key interest rate. On May 4, the Federal Reserve had already increased the rate by 25 basis points (bps) as part of its strategy to address the ongoing banking crisis and manage inflation. The central bank had also indicated the possibility of pausing the rate hike cycle. The forthcoming minutes will shed further light on this matter.
During a conference in Washington on May 19, Fed chair Jerome Powell expressed the progress made in policy tightening, emphasizing that the current policy stance is restrictive. He acknowledged the existing uncertainty surrounding the delayed impact of previous tightening measures and the potential effects of recent banking challenges. Powell stated that, given the progress achieved thus far, it is prudent to analyze the data and the evolving economic outlook to make cautious evaluations.
Given this context, the FOMC minutes hold significant importance, particularly as the next meeting is scheduled for June 13-14. Monitoring the contents of the minutes will provide valuable insights into the Fed’s considerations and help shape expectations for future monetary policy decisions.
2. US Debt Ceiling Talks
A second meeting between White House officials and Republican congressional negotiators aimed at addressing the US government’s $31.4-trillion debt ceiling ended without any noticeable progress from either side. Moreover, no further meetings have been scheduled at this time.
With the June 1 deadline looming, Washington is faced with the urgency of reaching an agreement to avoid the potential consequences of a historic default on upcoming debt payments.
“There is an increasing noise about a potentially messy hard-landing, given that the debt ceiling debate is still not cleared and once and if it does there may be a short-term liquidity squeeze in the system that will drive the yields even higher,” according to Alok Jain of Weekend Investing.
As discussions continue, market observers will closely monitor the movement of 10-year bond yields and the value of the rupee. Experts predict a trading range of 82.20 to 83.20 for the USDINR spot exchange rate, considering the evolving dynamics of the negotiations.
3. Global Economic Data Points
Market participants will be eagerly anticipating the release of the second estimates for GDP growth in the January-March period. This data is especially significant as the Federal Reserve’s tenth consecutive interest rate hike appears to have begun impacting the performance of the world’s largest economy. Preliminary estimates indicate that the US economy experienced a growth rate of 1.1 percent in Q1CY23. This figure represents a considerable decline compared to the 2.6 percent expansion achieved in the October-December quarter of 2022.
Another key focus for investors will be the UK inflation rate for April. Experts anticipate a reading below 10 percent for this period. In March 2023, the consumer price index inflation decreased to 10.1 percent from 10.4 percent in February. However, it has remained consistently above 10 percent since November 2022. Core inflation has also stubbornly hovered around 6.2 percent in recent months, and it is likely that in April as well, it will remain above the 6 percent threshold.
Here are key global economic data points to watch out for next week:
4. Corporate Earnings
Looking ahead to significant domestic data, the Q4 earnings season is entering its seventh week, with more than 1150 companies scheduled to announce their financial results.
The upcoming week will witness the release of earnings reports from major companies such as BPCL, Ashok Leyland, NMDC, Hindalco, Oil India, LIC, National Aluminium Co, Zee Entertainment, Vodafone Idea, BHEL, Info Edge, ONGC, and Sun Pharma.
In addition, it is crucial to monitor the performance of companies like Shree Cement, PB Fintech, Aditya Birla Fashion and Retail, Page Industries, IRFC, Nykaa, Biocon, Fortis Healthcare, Dixon Technologies, and Amara Raja Batteries.
These announcements will provide valuable insights into the financial performance and overall health of these key market players. Investors and analysts will be closely monitoring these reports to assess the business landscape and make informed decisions.
5. FII and DII Activity
During the week from May 15 to 19, foreign institutional investors (FIIs) purchased shares worth Rs 4,097 crore. This followed their previous week’s buying spree, where they acquired shares worth Rs 7,750 crore between May 8 and 12. As a result, the total FII inflow for May now amounts to Rs 17,376 crore. In March, FIIs bought shares worth Rs 1,997.70 crore, and their buying activity increased in April, reaching Rs 5,711.80 crore.
Conversely, domestic institutional investors (DIIs) sold shares worth Rs 677 crore during the week under review. However, the selling pressure from DIIs eased compared to the previous week when they offloaded shares worth Rs 1,262 crore between May 8 and 12.
“FII buying is getting neutralised by DII selling. The 6 percent rally in Nifty from the March lows has been used as a profit booking opportunity by DIIs and traders. The near-term outlook is cloudy,” Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.
Overall, the interplay between FII and DII activities in the market, along with profit booking strategies, will continue to shape the short-term market sentiment.
6. Oil Prices
Crude oil prices experienced a weekly upside of over 2 percent, marking their first weekly gain since mid-April. This increase was attributed to supply disruptions caused by wildfires in Canada and a positive demand outlook projected by the International Energy Agency (IEA). The IEA estimated that global oil demand would reach 102.01 million barrels per day (mbpd) in 2023, representing a growth of 2.21 mbpd compared to the previous year and an increase of around 1.3 mbpd from pre-pandemic levels in 2019.
Ravindra V Rao, VP-Head Commodity Research at Kotak Securities, noted that WTI crude had found support at the double bottom near $64 per barrel. As long as this support level holds, there is a possibility of a rebound towards $75.80 per barrel.
By the end of the week, Brent futures settled at $75.58 per barrel, while WTI crude concluded the week at the $71.69 mark. These price levels reflect the positive momentum in the crude oil market, driven by supply disruptions and optimistic demand forecasts.
7. Technical Levels
To sustain its bullish trajectory and progress towards the 18,750-18,880 level, experts emphasize the importance of the Nifty surpassing the range of 18,350-18,460 with strong conviction. Conversely, immediate support is expected at the 18,000-17,900 range, which is anticipated to attract fresh buying interest and potentially limit any potential price declines, according to Arvinder Singh Nanda.
In the previous week, the Nifty Bank came extremely close to reaching its all-time high of 44,151.80, falling just 0.10 points short at 44,151.70. Going forward, market experts suggest that a decisive breakout beyond the range of 43,500-44,100 will provide valuable indications about the future direction of the index.
Given that the monthly Nifty contracts are set to expire on May 25, it becomes crucial to closely monitor these levels as they can significantly impact market dynamics and provide cues for potential market movements.
8. F&O Cues
During the week of monthly F&O (Futures and Options) contracts expiry, experts highlight the significance of the 18,200 level based on Option data. If the index manages to sustain this level, it is anticipated that a potential upward movement towards the range of 18,300-18,500 could be observed, with crucial support identified at 18,000.
Analyzing the monthly Options data, it is observed that the 18,200 strike holds the highest Call open interest (OI), followed by the 18,400 and 18,500 strikes. Notably, significant Call writing is observed at the 18,400 strike, followed by the 18,600 and 18,500 strikes.
On the Put side, the 18,200 strike also possesses the maximum open interest, with the 18,000 and 17,500 strikes following suit. Put writing is noted at the 18,000 strike, followed by the 18,100 and 17,500 strikes. Put unwinding, on the other hand, is observed at the 18,300, 18,500, and 18,400 strikes.
These observations from the Option data provide valuable insights into the key levels and trends in the market, signaling potential areas of support and resistance for the index during the expiry week of monthly F&O contracts.
9. India VIX
Last Friday, the volatility index experienced its third consecutive session of decline. After reaching near historic lows in previous weeks, it rebounded to levels above 13 in the past couple of weeks. However, the index has largely remained within a range of 11-13 for the past seven weeks.
In the week that passed, the India VIX, which gauges the expected volatility in the Nifty50 for the next thirty days, witnessed a 4.3 percent decrease, dropping from 12.85 levels to 12.30 levels.
Jigar S Patel, Senior Manager of Equity Research at Anand Rathi, noted that the India VIX has transitioned from the 10-11 zone to 12-13. Historically, when the VIX has moved from this range, it has often been accompanied by significant volatility in the market. Patel also mentioned that the recent price action seemed to be driven by a handful of stocks, which gave the impression of index management.
Overall, the decline in the volatility index reflects a relative stabilization in the market sentiment, with expectations of reduced volatility in the near term. However, market participants remain cautious and are closely monitoring the VIX levels for potential shifts in market dynamics.
10. Corporate Action
Next week, several companies including Bank of Maharashtra, Great Eastern Shipping Company, Manappuram Finance, Rossari Biotech, Kansai Nerolac Paints, Kennametal India, and Trent are scheduled to go ex-dividend. This means that anyone who buys shares of these companies on or after the ex-dividend date will not be eligible to receive the upcoming dividend payment. Investors and market participants will be monitoring these ex-dividend dates as they may impact the trading dynamics and investment decisions related to these stocks.
Here are key corporate actions taking place in the coming week:
Disclaimer: The views and investment tips expressed by experts on The Shining Media are their own and not those of the website or its management. The Shining Media advises users to check with certified experts before taking any investment decisions.