Market Week Ahead: North Korea, F&O expiry among 10 things to keep investors busy

Moneycontrol News

The market had started the previous week on a strong note, with the Nifty hitting a record high of 10,178.95 (on September 19). However, the sell-off in the later part of the week (especially on Friday when it lost 1.5 percent) wiped out those gains and the index ended the week below the psychological 10,000-mark, with a 1.2 percent loss on likely another hydrogen bomb test by North Korea and after S&P downgraded China's credit rating.

After this correction, the market may see some bounce-back amid consolidation initially in the coming week. But the rally may not be sustainable due to ongoing geopolitical tensions between the US and North Korea. Now, Iran also successfully tested its new medium-range missile despite warnings from Washington.

So the major upside looks capped in near-term, experts feel. Earnings and economic recovery, which is likely in second half of FY18, would be positive triggers, they said.

Other reasons for likely consolidation would be expiry of September futures & options contracts due on Thursday and the lack of any major micro data announcement. So the range for the coming week could be 9,900-10,100 if there is no escalation in North Korea tensions, experts feel. Overall, it has been in a range of 9,800-10,100 since August and now the upper end of range increased to 10,200.

"We believe that the volatility will remain high in the coming week. But developments related to the lingering geo-political tussle will dictate the market trend," Jayant Manglik, President, Retail Distribution, Religare Securities said.

Apart from the above factors, FII trend, monsoon update and currency movement will also remain on the participants’ radar, he added.

While suggesting to keep hedged positions and avoid over-leveraging, he said investors should see this correction as an opportunity to accumulate quality stocks.

The major fall is unlikely in the coming week, unless geopolitical tensions are intensified, according to experts.

They feel the Indian market is well supported by domestic inflows. FIIs continued to be sellers in India since August but that is not something to be worried about for now, they said.

"Markets have not priced in any nuclear attack but we don't expect a nuclear war from North Korea. However, it would be a mistake to allow North Korea to have nuclear weapons," Jamie Dimon, Chairman & CEO, JPMorgan Chase said in an interview to CNBC-TV18.

Here are 10 things to watch out for in the coming week:-

North Korea

North Korea's reply to the US Trump's tweet on Thursday saying it may consider testing a hydrogen bomb in the Pacific Ocean hit market sentiment globally.

So investors will closely watch developments in North Korea.

Experts feel this North Korea tension will remain the main factor to watch out for, at least till it subsides completely.

Meanwhile, China on Saturday said it would limit oil exports to North Korea under UN sanctions over its nuclear and missile development. The world's second largest economy will also ban textile imports from the North.

Rupee

On Friday, fiscal woes due to reports of likely government's stimulus to revive economy caused selling pressure in the rupee on last Friday morning. However, it recovered all its losses in the later part of the session to end flat due to RBI's intervention, and selling of dollars by exporters & banks.

Many experts feel if the government gives stimulus then the FY18 target for fiscal deficit may not be achieved.

"A stimulus can potentially increase the central government's fiscal deficit to 3.5-3.7 percent of GDP in FY18, from the budgeted 3.2 percent target (3.5 percent of GDP achieved in FY17), depending on the size of the stimulus (0.3-0.5 percent of GDP). This would be a setback to the fiscal consolidation momentum that was endured through the past few years," Deutsche Bank said.

F&O Expiry

All futures and options contracts for September month will expire on Thursday and positions will be rolled over to October.

ICICIdirect feels the Nifty is likely to remain below 10,100 levels in the expiry week. The aggressive writing is seen in 10100 Call option which is expected to keep Nifty below 10,100 level, it said.

If the currency cools-off below 65.3 against the US dollar, the equity indices will again find support near the crucial support zone of 9,850-9,900 towards expiry, it feels.

The volatility has moved up towards 13 percent due to closure of Put writing positions at near the money strikes. This may keep the markets subdued for some sessions, according to ICICIdirect.

Maximum Call open interest (OI) of 64.43 lakh contracts was seen at a strike price 10,200 which will act as a crucial resistance level for the index in September series, followed by 10,100 (with 56.44 lakh contracts in open interest) and 10,000 (with 41.55 lakh contracts in OI).

Maximum Put OI of 42.17 lakh contracts was seen at strike price 9,900 which will act as a crucial base for the index in September series followed by 9,700 which has seen 33.79 lakh contracts in open interest.

Auto stocks

Auto stocks will be in focus on Friday ahead of September sales data due on October 1.

Numbers are expected to be strong due to demand and restocking ahead of Diwali. So Tata Motors, Maruti Suzuki, Hero Motocorp, TVS Motor, Bajaj Auto, M&M and Eicher Motors will be in focus.

IPO and Listing

Prataap Snacks' Rs 482-crore initial public offering will remain open till September 26. The issue has been subscribed 35 percent on Day 1.

Capacit'e Infraprojects will list its equity shares on September 25. Experts expect the listing price could be in the band of Rs 350-400 per shares against issue price of Rs 250 per share.

ICICI Lombard General Insurance Company is expected to debut on bourses on September 27. Grey market premium and 3 percent overall subscription to the issue indicated that there could not be much premium on listing, experts feel.

FIIs & DIIs data

Foreign institutional investors have been sellers in India since August. They sold shares worth nearly Rs 20,000 crore between August 1 and September 22.

During the same period, domestic institutional investors bought shares worth more than Rs 25,000 crore, according to provisional data.

Macro data

The macro economic data on infrastructure output for August and foreign exchange reserves for the week ended September 22 (which already crossed USD 400 billion in previous week) will be released on Friday after market hours.

India’s budget balance; external debt for the quarter ended June 2017; deposit growth; and bank loan growth data will also be announced on Friday after market hours.

Technical Outlook

Experts on an average said they expect the immediate support for the Nifty to be 9,900 level, followed by 9,850 while the resistance could be around its previous high of 10,178.95 level.

"In the coming week if Nifty trades and closes above 10,012 level then it is likely to test 10,078 – 10,144 - 10,221 levels. However, if Nifty trades and closes below 9,916 level then it can test 9,850 – 9,784 - 9,707 levels," Arpit Jain, ACA, Arihant Capital Markets said.

He said, "Broadly, we are of the opinion that 10,150 level remains major resistance for the markets. Further, any close below 9,850 level would intensify selling pressure."

Hence, one should adopt a cautious approach towards the markets at current level, he advised.

According to Jayant Manglik, the Nifty has crucial support at 9,900 and its breakdown will result in further slide while 10,100 would act as resistance in case of any bounce.

Corporate Action, Earnings, Stocks in Focus

Lanco Infratech will announce its June quarter earnings on September 26, Petron Engineering on September 28 and UB Engineering on September 29.

On coming Monday, Visa Steel share price is expected to open higher as the company has received approval from shareholders to raise limit for investment by FIIs & NRIs in equity share capital.

Coffee Day Enterprises may remain weak as PTI sources said that Income Tax officials on Saturday continued their search at the properties belonging to former Union minister SM Krishna's son-in-law V G Siddhartha, who is also the Chairman and Managing Director of the Cafe Coffee Day (CCD) group.

Matrimony.com will also be in focus on Monday as the stock fell 16.5 percent in two consecutive sessions (since listing). BNP Paribas Arbitrage sold 2.74 lakh shares in two days through bulk deals.

Bharat Road Network will also be closely watched as despite weak market conditions, it gained more than 2 percent on Friday. Corporation San Finance bought 8.77 lakh shares (representing 1 percent of total paid-up equity) of Bharat Road Network.

Novartis India will consider a proposal for buyback of shares on Monday.

Cadila Healthcare may open higher on Monday as its group firm Zydus Cadila has received approval from the USFDA to market blood pressure medicine, Amlodipine and Olmesartan Medoxomil tablets.

Global cues

Japan's Manufacturing PMI for September will be released on Monday while Bank of Japan will announce minutes of the monetary policy committee meeting on Tuesday.

In US, new home sales data for August will be declared on Tuesday and final GDP data for Q2 on Thursday.