Market Week Ahead: 10 key factors that will keep traders busy

The market registered gains for the second consecutive week that ended on April 17, following positive global cues on expectations that infections may be peaking out in Europe and that US may be easing the lockdown.

The Reserve Bank of India (RBI)'s measures to boost liquidity with easing NPA classification norms and rising hope for an economic stimulus package with likely opening up of businesses also lifted sentiment.

While the Nifty50 climbed 1.7 percent to 9,266.75, the BSE Sensex rose 1.38 percent to 31,588.72 during the volatile week, taking total recovered gains to 22 percent from lows touched on March 23.

Experts expect the global mood to guide Indian equities in the coming weeks and do not see major directional move unless the lockdown is lifted in major economies. Stock-specific movement may be seen due to quarterly earnings which seem to have been priced in by the market.

"It is expected that the domestic market will continue to reflect the global mood given that combating COIVD-19 is a global effort and therefore the mood will continue to change depending on the situation," Jimeet Modi, Founder & CEO at SAMCO Securities & StockNote told Moneycontrol.

However, as a word of caution, it would be pertinent to note that although markets are rising, volumes along with open interest are at yearly lows and investors still appear to be wary, he said.

According to him, it is expected that markets may not take any material direction till the lockdown ends. "The moment lockdown ends, market would start reacting to the ground reality."

On April 20, the market will first react to HDFC Bank's earnings.

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

March quarter earnings

The March-ended quarter earnings season was kicked off last week by Wipro, TCS and HDFC Bank. Both IT companies disappointed the Street with their numbers and expect weakness in earnings to continue for first half of FY21, while HDFC Bank reported decent numbers.

Key earnings to watch out for in the coming week would be Infosys, Tata Elxsi, ICICI Prudential, ACC, Bharti Infratel, Alembic Pharma, MindTreeand Persistent Systems, etc.

Infosys

The country's second largest IT company Infosys on April 20, is expected report around 4-8 percent sequential degrowth in Q4FY20 profit due to lower other income and absence of tax benefits and around 1.5 percent revenue growth in rupee terms.

Dollar revenue growth could be muted but there may be marginal uptick in Q4 constant currency revenue against Q3. EBIT and margin could be stable on sequential basis at operating level.

Brokerages largely feel that Infosys may not give guidance for FY21, but if it gives revenue and margin forecast, then the guidance range could be more than the usual range due to the potential impact of the COVID-19 crisis. Hence, commentary over likely slower client discretionary spending and deal win trajectory — given the travel restrictions and pricing pressure — would be key to watch out for.

COVID-19

The number of confirmed COVID-19 cases have increased further globally, even though some areas in the United States and Europe have been showing some decline in daily infections.

Thus, reports suggest that US President Donald Trump may be preparing for re-opening the economy to some extent. This could happen to some extend in some European nations too. But, the key thing to watch out for would be the potential impact of COVID-19 crisis on global growth and trade in the coming quarters even as stimulus packages worth around $14 trillion have been announced globally to support economies.

Even in India, the government has started allowing some businesses to run (essential as well as non-essential), but with social distancing norms.

Click here for Moneycontrol's full coverage of the COVID-19 pandemic

Despite this, the novel coronavirus remains a key thing to watch out for in the coming weeks. According to the Johns Hopkins University Coronavirus Resource Center, total confirmed cases of COVID-19 have reached 23.17 lakh globally, with 1.59 lakh deaths.

With 7.3 lakh, the United States has the highest number of confirmed COVID-19 cases. The US is followed by Spain, Italy, France, Germany and the United Kingdom.

In India, the total confirmed COVID-19 cases stand at 14,792. The death toll in the country stands at 488, according to the Union Health Ministry.

Follow our LIVE blog for the latest updates on the novel coronavirus pandemic and its impact

Hopes for a big economic package

Hopes for a big economic stimulus package has been rising as we move closer to the deadline of the extended lockdown (May 3).

After a welfare package by the Centre, and two liquidity stimulus from the Reserve Bank, experts suggest that the government could announce a big package before the lockdown ends, which could help the economy.

"The second fiscal package from government will be larger than Rs 1.7 lakh crore package announced last month. This time it may provide some tax benefits, support to MSMEs, farmers and daily workers. Though no specific benefit is expected for corporates, the government's intention to relax economic restrictions and open the economy in a phase wise manner itself will provide a boost to the market," Vinod Nair of Geojit Financial Services told Moneycontrol.

FII flow

FII flow was volatile as it turned net sellers for the week gone by against net buyers in previous week. As a result, they net sold Rs 2,851.73 crore in April, while for the passing week, the net selling was Rs 4,197 crore worth of shares.

Experts do not expect the stability in FII flow till the virus fades away and economy shows signs of improvement.

"FIIs/ FPIs also seem to be under worry as rupee is continuously losing its value and they are therefore selectively selling, even though with lesser intensity, whereas domestic investors are still cautious and unwilling to put money given that markets have already increased by 22 percent from their lows," Jimeet Modi of SAMCO said.

DIIs were also net sellers for the week (Rs 339 crore) and for the April too (Rs 2,364 crore).

Rupee

The Indian Rupee weakened for third consecutive week against the US dollar and continued to close above the 76 mark amid concerns around the coronavirus pandemic and consequent economic distress along with FII outflow and strength in dollar index.

The currency depreciated by 11 paise during the passing week, though it strengthened by 48 paise to close on April 17 at 76.40 a dollar after RBI announced more liquidity measures to support the economy. It touched a record low of 76.86 during the week.

"Market participants are looking forward to a second round of stimulus from the federal government, and that could trigger some gains in the rupee. The domestic unit is likely to trade in the 75.30 – 78.00 band in the next two weeks," Sugandha Sachdeva VP-Metals, Energy & Currency Research at Religare Broking told Moneycontrol.

Moreover, the domestic currency has priced in much of the bad news surrounding the coronavirus, and the extent of depreciation in percentage terms may be lower than what was seen in March, she said.

Technical view

The Nifty50 closed 3 percent higher on April 17 and 1.7 percent for the week at 9,266.75, forming Hanging Man kind of formation on daily as well as weekly scales. In fact, the index has gradually been shifting its support to higher zones and reported a highest daily close in last twenty one trading sessions.

Experts feel the next immediate resistance for the index could be 9,300 followed by 9,400, and if the index sustains above these levels for few trading sessions then 9,800-10,000 levels can't be ruled out, while the support would be 8,800-8,600.

"If we take the retracement of the entire fall from the highs of 12,150 to the low of 7,511 than 38.2 percent retracement is coming around 9,315, which has been achieved successfully on Friday. Now, if Nifty manages to sustain above 9,300 levels then we can expect further momentum to continue towards 9,865 as well which is 50 percent retracement level of the entire fall," Nilesh Jain, Derivative and Technical Analyst at Anand Rathi said.

F&O cues

The Option data indicated that the Nifty could trade in a range of 8,800 to 9,700 levels in coming days and 9,000 seems to be a key point for further upside. Maximum Call open interest was at 10,000 then 9,000 strike while maximum Put open interest was at 8,000 then 9,000 strike. Put writing was seen at 9,000 then 9,200 strike while Call writing was seen at 9,500 then 9,800 strike.

"The previously placed Call writers at 9,000 strike may start finding it difficult to hold their positions. This may result in short covering in these positions as we are moving towards April expiry," Amit Gupta of ICICI Direct said.

"The higher levels of Nifty are also seeing profit booking trends as seen immediately after the RBI announcement. This shows scepticism is still prevailing among market participants. Despite this, the Nifty closing above 9,000 for the week is noteworthy," he added.

India VIX also dropped to sub 50 levels from its recent swing high of 86.64 and has been making lower top - lower bottom from last three weeks which is giving comfort to bulls in the market. The index fell by 14.37 percent to 42.59 levels during the week.

Corporate action and macro data

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

Among macro data points, deposit and bank loan growth for fortnight ended April 10 and foreign exchange reserves for week ended April 17 will be released on coming Friday (April 24).

Global Cues

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