10 key factors that will keep traders busy this week

The market snapped its run of three consecutive weeks on June 7 as the bears managed to take charge from the bulls on Dalal Street.

Traders preferred profit booking after the Reserve Bank of India (RBI) policy. The benchmark indices hit record highs earlier in the week.

The expected repo rate cut of 25 bps and no major announcement to ease NBFC's liquidity crisis by the RBI, DHFL's default on debt repayment, US-China trade war tensions and possible delay in monsoon dented market sentiment.

However, the loss was limited due to FIIs buying, a fall in oil prices, short covering in key banking and financials, and over hopes of a rate cut in the US.

The BSE Sensex shed 0.25 percent and the Nifty50 lost 0.44 percent in week ended June 7 against its more than 5 percent rally in the previous three straight weeks.

As there are no major cues barring the release of the industrial output and inflation data in the coming week, the market is expected to remain rangebound with more stock specific action, and it will closely watch the monsoon update and fresh triggers in the upcoming Union Budget FY20, experts said, adding globally the key factor to focus on would be development of the US-China trade situation.

"Indications are mixed at present which could result in further consolidation in Nifty. Traders should opt for a stock specific trading approach and maintain positions on both sides," Jayant Manglik, President - Retail Distribution at Religare Broking told Moneycontrol.

He said that the progress of the monsoon and global cues would largely dictate the market trend ahead.

Sahaj Agrawal, Head of Derivatives at Kotak Securities also said, "We remain in a structural uptrend for the markets but expect consolidation for the near term. A range bound movement at 11,700-12,100 for the next few weeks is expected."

The broader market's health has deteriorated which reinstates the possibility of a consolidative market, he added.

The broader indices, too, remained under pressure during the passing week with Nifty Midcap index falling 1 percent and Smallcap index down 1.8 percent.

On June 10, the market may start on a positive note as global peers rallied on June 7 after weak jobs data pointed rate cut hope.

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

Union Budget

After the elections and RBI policy meet, the key event to watch out for would be upcoming Union Budget FY20, which is scheduled to be announced on July 5 by new Finance Minister Nirmala Sitharaman.

It is the first Budget after general elections won by the NDA government with a whopping 353 seats, so that the key triggers to watch could be with respect to infrastructure spending, economic and consumption growth revival, job creation, agricultural reforms, fiscal prudence etc in the coming days.

The RBI's role is limited with respect to economic revival as it has cut the repo rate by 2.25 percent since January 2014 (from 8 percent) and banks passed-on only a meagre 60 bps of rate cuts to end-users.

"Consumption and investment revival will happen not when RBI cuts the rates, but when banks cut the rates, hence RBI may have to “mandate” the transmission framework. In this backdrop, the new finance minister’s first budget is key in changing the narrative from the default to durable growth," Jagannadham Thunuguntla, Senior Vice President and Head of Research (Wealth) at Centrum Broking told Moneycontrol.

Fiscal prudence, undoubtedly and inarguably, is the foundation for sustenance of any economic growth. However, when economy seems to have evidently hit deeper rough patch, providing fiscal respite may be merited by the finance minister (especially when monetary policy hasn’t been able to stimulate the economy either due to non-transmission or otherwise), he added.

The first session of 17th Lok Sabha will be held from June 17 to July 26, 2019.

Macro Data

The government will release industrial output data for April and retail inflation for May on June 12.

The release of the factory output data for April will be important to watch for especially after it contracted 0.1 percent MoM in March due to a slowdown in manufacturing.

The growth in fiscal year 2018-19 was 3.6 percent YoY due to declining growth of private consumption, the tepid increase in fixed investment, and muted exports.

Retail inflation in April increased marginally to 2.92 percent from 2.86 percent in previous month, but core CPI contracted to 4.6 percent from 5 percent MoM.

Other data points to watch in the coming week would be current account balance for Q4 FY19 on June 13, and WPI inflation, foreign exchange reserves data for week ended June 7 and the Balance of Trade data for May on June 14.

Crude Oil Price

Brent crude futures, the international benchmark for oil prices, gained sharply to close at $63.29 a barrel on June 7 on a likely production cut by the OPEC, but it lost 1.9 percent for the week on global growth worries and US-China trade war woes.

Oil prices fell 15 percent since the month of April when it was around $75 a barrel, which is quite positive for country like India which imports around 85 percent of requirement.

"Crude oil is expected to experience sharp volatility in coming sessions as on the one side US crude oil production continues to make a record high and there are global growth concerns while on other side there are expectations that OPEC might extend production cuts till the end of the year in its bi-annual meeting in Vienna on June 25," Rushabh Maru, Research Analyst - Currency and Commodity, Anand Rathi Shares and Stock Brokers told Moneycontrol.

Trade War

Globally, investors keep a close watch on the trade developments between world's largest economies US and China, as talks between both failed many times to resolve the issue, which could hit global growth in the coming years.

Negotiations between the two countries went haywire with the increase of tariffs on $200 billion worth of Chinese goods exported to the US. A ban on American companies doing business with Chinese telecom giant Huawei has further complicated matters.

Adding to this, US president Donald Trump said that tariffs on China could be raised by another $300 billion if necessary.

Trump was also planning to impose a 5 percent tariff on Mexican goods from June 10, but both countries signed an agreement on June 7 to avoid tariffs.

DHFL - NBFC Crisis

After IL&FS crisis, DHFL's default in debt repayment created a ruckus on Dalal Street last week hitting banks and fund houses which have exposure to its debt.

The company, by paying some dues on June 7, tried to ease the pressure, but that is not the end. The key thing to watch out for in coming days would be how the company pay its major dues by selling stake in subsidiaries and how the government and RBI, which does not want this liquidity crisis to turn like US subprime crisis, will deal with liquidity issue.

"The malaise was caused due to the rather illiquid nature of assets which the lenders had agreed to finance. But since lenders are no longer able to rollover their bonds/commercial papers, they have no option but to sell the mortgaged assets which has become quite difficult in the current market. This temporary funding gap mismatch, unless the RBI proactively helps them, can snowball into a bigger-crises of confidence that can lead equity markets to roll down further," Jimeet Modi, Founder and CEO, SAMCO Securities & StockNote told Moneycontrol.

FIIs

Foreign institutional investors, so far, are net buyers in India to the tune of Rs 921.20 crore (excluding Friday's provisional data - selling Rs 479 crore) in June on top of more than Rs 68,000 crore worth of buying since February, which continued to play a supportive role in the market.

After RBI policy and DHFL issue, they have not sold much compared to buying on Monday (over Rs 3,000 crore) in the week gone by, which indicated that they will closely watch Union Budget and government's plan for next one year.

On other side, DIIs remained net sellers in June to the tune of Rs 1,289 crore.

Technical Outlook

The Nifty50 closed above 11,850 on June 7 and formed a Doji kind of pattern on the daily scales, and a Spinning Top kind of formation on the weekly charts.

The market is expected to consolidate in the coming week which could form the base for next directional move on either side, experts said, adding the market structure remains strong.

"We believe index would undergo a healthy consolidation in the broad range of 11,600-12,000 and form a higher base for the next leg of upmove. Price structure in the Nifty remains firmly positive we do not foresee the index breaching the exit poll session low (11,591) and any dips should be used as a buying opportunity for up move towards 12,000 levels," Dharmesh Shah, Head – Technical, ICICI direct told Moneycontrol.

F&O Cues

Nifty, on June 7, took exactly support at the highest open interest (OI) point 11,800 which has 14.84 lakh shares with highest addition of 8.90 lakh shares as compared to previous session followed by 11,700 PE which has an addition of 4.88 lakh shares and total OI stands at 10.27 lakh shares.

On the calls front 12,000 CE has the highest OI of 19.06 lakh shares and addition was seen in 11,900 CE to the extent of 4.54 lakh shares followed by 12,000 Strike 3.5 lakh shares, while the second highest open interest stands at 12,100 CE which is 14.23 lakh shares.

Option data suggests a wider trading range in between 11,750 to 12,250 zones, experts said.

"Nifty futures saw marginal fresh OI build up during the week. Decline in Nifty premium near life-time highs suggests prevailing caution in the market. At the same time, like previous week, significant Call option writing was seen at 12,000 strike indicating limited upsides are expected in near term. Thus, another move above 12,000 may trigger a fresh round of upsides," Amit Gupta of ICICI Direct said.

Corporate Action

Global cues

Globally key data points to watch out for in coming week are: