Dalal Street This Week | 10 factors that will keep traders busy

Benchmark equity indices ended a volatile week on November 2 with minor cuts as re-emergence of concerns over the US Federal Reserve’s rate hike trajectory and lower-than-expected growth in the June quarter GDP weighed on sentiment.

The Nifty 50 and Sensex closed the week ended September 2 with marginal losses after the US Federal Reserve Chief Jerome Powell reiterated the central bank’s commitment to rein in runaway inflation and suggested that another 75-basis-point rate hike at the upcoming meeting may be warranted.

Powell’s comments were in contrast to expectations of the market as investors had anticipated a moderation in Fed’s hawkish tone after certain key economic data points at the world’s largest economy pointed to a slowdown.

“The hawkish comments may correct this perception of US Fed easing on rate hikes in the near future,” Kotak Securities said in a note.

Adding to the muted sentiment was lower-than-expected growth in India’s GDP in June quarter at 13.5 percent year-on-year against Street’s expectations of more than 15.5 percent growth.

The GDP print has prompted private economists to trim their growth estimate for 2022-23 while many expect the Reserve Bank of India to do the same at the upcoming policy meeting.

This week, lack of immediate domestic triggers will likely see Indian markets move in tandem with their global counterparts. “Given the absence of major domestic events, Indian market sentiment will be influenced by its global counterparts to determine its movement. Investors around the world will be keeping a close eye on China's inflation figures,” said Apurva Sheth, head of market perspectives at Samco Securities.

Let’s take a look at the 10 factors that will affect the market:

1. US jobs report

The US non-farm payrolls data for August came in line with Wall Street’s expectations at 315,000 new jobs added, which continued to a show a robust labour market. The strength in the jobs market is likely to boost Fed’s hawkish posturing on interest rate hikes as it may feel it has room to take rate higher to tackle broad-based inflation.

2. Rate hike expectations

Heading into September 2’s US jobs report data, investors had sharply increased their rate hike expectations from the US Fed’s monetary policy meeting later this month to 75 basis points (bps). The strong jobs data on Friday has meant that investors now expect a third successive 75 bp hike in interest rates from the US Federal Reserve. Markets expect the central bank to pause its interest rate hike sometime in December. Higher US interest rates tend to make it expensive for foreign funds to borrow money and invest in high risk markets like India.

3. All eyes on China

Investors will have one eye on the Chinese economy as it reports the August inflation print on September 8. China’s economy has been labouring from its restrictive COVID-19 policy and an ailing property sector. The inflation print could set the tone for how markets perceive the world’s second-largest economy’s health going ahead.

4. Broad market outperformance

Where benchmark indices faltered in previous week, midcap and smallcap indices continued their winning streak. The Nifty Midcap 100 and Nifty Smallcap 100 posted positive returns in the previous week despite global concerns as investors are increasingly favouring both the segments of the market over largecaps. The optimism for the domestic economy has resuscitated investor interest in smallcap and midcap stocks, which are expected to outperform next week.

5. Rupee conundrum

The volatility in the foreign exchange market may take its toll on sentiment in the equity market. With foreign participation drying up in the previous week in the equity market on the back of US Fed’s hawkish commentary, the rupee ended the week on a weaker note against the US Dollar. The US Dollar index has seen a recent revival and surged to a 20-year high against a basket of major currencies last week.

“We expect rupee to remain weak compared to the US dollar on concerns over fresh COVID-19 lockdown in parts of China. Concerns over global economic slowdown and overall strength in Dollar may also put downside pressure on Rupee,” said Anuj Chaudhary, research analyst at Sharekhan.

6. Crude oil’s comeback

After slumping to multi-month lows recently on concerns over global slowdown, the global crude oil market has seen wild swings. Monday’s meeting of the members of the Organization of Petroleum Exporting Countries will likely set the tone for the oil market as the cartel is expected to mull a possible cut in output to buoy oil prices which have fallen from the highs of $125 per barrel back in June to around $93 per barrel currently.

7. IPO Mart

The first IPO from the banking sector in a while will see Tamilnad Mercantile Bank offer its shares to the public from September 5 to September 8 in a book building process. The IPO has been priced at Rs 500-525 and has already raised Rs 363 crore from anchor investors such as Nomura Singapore, Kotak Mahindra Life Insurance and Societe Generali. After the success of Syrma SGS, investors will hope that the IPO mart can gather some steam to end the year on a high note.

8. Technical view

On the weekly scale, The Nifty 50 index has seen a formation of bullish candlestick pattern as the closing was higher than opening levels. For traders now, the 20-day SMA (simple moving average) and 17,450 would be the important support zone while 17,700 could act as a major hurdle for the market.

Kotak Securities is of the view that directional upside move is possible only after the 17,700 breakout. Above which, the index could move up to 17,900-18,000, the market expert said, adding on the flip side, below 17,450 the index could retest the level of 17,250-17,150.

9. F&O cues

On the Option front, there wqshave seen maximum Call open interest at 17,500 strike followed by 18,000 strike, with Call writing at 17,600 strike then 17,500 strike, while the maximum Put open interest was seen at 16,000 strike then 16,500 strike, with Put writing at 17,600 strike followed by 16,000 strike.

The above Option data indicated that the Nifty may remain in an immediate trading range of 17,500-18,000 levels.

The banking index gained more than one percent during the last week and formed bullish candlestick pattern on the weekly scale. Hence, if the index closes above 40,000 mark then there could be uptrend towards record high levels, experts said.

10. Bearish FPIs

While flows in the cash market from foreign investors has been drying up after more than Rs 51,000 crore of net buying in August, they have been steadily building up short positions in the derivatives segment.

Net short positions by foreign investors in the Nifty 50’s September futures contract jumped to more than 84,000 contracts from less than 30,000 on August 25. The surge in bearishness of the cohort is likely down to the shift in sentiment towards the US Fed’s rate hike trajectory.