Volatility ensued domestic markets in the week ended March 15 due to a broad-based selloff in mid- and small-cap pockets amid concerns of frothy valuations. In the coming week, the US Federal Reserve's interest rate decision, macro-data, and more stress test results from mutual fund houses are expected to keep markets on tenterhooks, said analysts, advising investors to buy-on-every dip.
Frontline indices Sensex and Nifty declined 2 percent each last week, while broader markets - the BSE Smallcap and the BSE Midcap - slipped up to 6 percent. All the sectors traded in the red, except IT and Consumer goods, with maximum fall seen in Oil & Gas, Construction, and Media.
In the coming week, the market is expected react to the US Federal Reserve, Bank of England, and Bank of Japan's interest rate decisions. Other than that, important macro-economic data of major countries and S&P Global manufacturing and services PMIs of India, UK, and the US will also be watched out for.
"The week ahead, the global central bank’s monetary policy decision will get investor attention. The US Fed, Bank of Japan, and Bank of England will unveil their rate decisions. There is uncertainty over Fed rate cuts due to an increase in the US unemployment rate and higher-than-expected US inflation. Consequently, the US 10-year yield and dollar index inched higher, and the repercussions were visible in the emerging markets as well," said Vinod Nair, Head of Research at Geojit Financial Services.
Here are the top 10 factors that will garner a market reaction:
1. US Federal Reserve's interest rate decision
The US Federal Reserve is likely to keep interest rate unchanged in the range of 5.25-5.5 percent, according to economists' predictions. Other than this, market participants will keenly track economic projections and interest rate cut forecast.
According to a Reuters poll, economists predicted the US Fed to start cutting interest rates in June 2024 as the central bank awaits more data to confirm whether inflation is heading convincingly towards the 2 percent target.
In February, the US consumer price index rose to 3.2 percent, slightly above market expectations of 3.1 percent. Core CPI, which excludes food and energy prices, increased 0.4 percent from the last month and 3.8 percent from a year ago.
The movement in US bond yields and dollar index post US Fed's interest rate decision will also influence equity trends. On March 15, the US 10-year bond yield stood around 4.3 percent, while the US dollar index hovered around the 103 level.
Global factors
Apart from this, the Bank of Japan and Bank of England will also announce their monetary policy decisions. Additionally, investors will track the UK producer price index and the S&P Global Manufacturing & Services PMI.
Domestic factors
Back home, India's Services PMI data will also be released. Additionally, market participants will watch out for the bank loan and deposit growth as it will determine the sector's performance going ahead. India will also release its foreign exchange reserves data.
Stress test results
Several mutual fund houses released their liquidity stress test results following Sebi's mandate to Association of Mutual Funds India (AMFI). The move comes on the back of market regulator SEBI’s concern over froth in these schemes amid relentless flow despite large fund houses restricting inflows due to lack of investment opportunity at the right valuation.
Nippon India Small Cap Fund, which runs the biggest small-cap scheme with Rs 46,000 crore worth of assets under management (AUM), said it will need 27 days to sell off half of its portfolio.
Edelweiss Mutual Fund said it would take two days to liquidate 50 percent of the portfolio. All these mutual fund houses need to publish their stress test results every 15 days beginning March 15.
IPO & listing
After weeks of back-to-back IPOs, primary markets will see some calm this week. Mainboard IPO Krystal Integrated Services will close its subscription on March 18. On the second day of bidding, the IPO was subscribed by 70 percent. The company will debut exchanges on March 21, 2024.
Apart from that, SME IPO Vishwas Agri Seeds will open for subscription on March 21 and close on March 26. Vishwas Agri Seeds operates within the agricultural sector, specialising in the processing and distribution of seeds to farmers through an extensive network. The company offers a diverse range of crop seeds, including Groundnut, Soybean, Wheat, Cumin, Green Gram, and Black Gram.
FII flow
Market participants will watch out for foreign flows this week following Sebi's approval of a raft of relaxations for foreign portfolio investors, alternative investment funds, and entities seeking to raise funds through initial share sales, as part of facilitating the ease of doing business in the securities market.
So far in March, foreign institutional investors (FIIs) bought equities worth Rs 40,710 crore. On March 15, FIIs bought Rs 848 crore worth of equities, while DIIs sold Rs 682 crore worth of equities.
Technical View
Analysts expect markets to experience further downward pressure in the coming week after the break of dual support, that is, 20-DEMA and rising trendline on the daily chart.
"A breakdown below the previous swing low i.e. 21,850 could result in the next leg of down move to 21,500. The view would be negated if it manages to cross and hold decisively above the 22,250 level. Among the key sectors, IT and FMCG look comparatively stronger while others may continue to trade mixed. Amid all, we reiterate our preference for index majors and suggest maintaining positions on both sides," said Ajit Mishra, Senior Vice-President of Technical Research at Religare Broking.
Oil Prices
Brent crude futures, the international oil benchmark, finally closed above the key hurdle, i.e. $84 a barrel, after several weeks of consolidation. In fact, the price has seen a breakout of downward sloping resistance trendline, though the volume was lower than average. Brent crude futures closed at $85.34 a barrel, up 4 percent on weekly basis.
Brent may face the next resistance at $88 a barrel, with support at around $80 a barrel, experts said.
Oil prices have reacted positively to the bullish demand outlook for crude oil in 2024 from the leading energy research houses (OPEC, EIA and IEA) and further hinting of supply deficit of 0.3-0.5 mbpd during the course of the year. Hence, "we see oil prices head for further upside in short to medium term. All the major correction should be considered as buying opportunities," Mohammed Imran, research analyst at Sharekhan by BNP Paribas said.
F&O Cues and India VIX
Considering the volatile trade with negative bias, the options data indicated that 21,800 is expected to be key support for the Nifty 50 in the coming days, with crucial hurdle on the higher side at 22,300.
On the weekly options front, the maximum Call open interest was seen at 23,000 strike, followed by 22,500 strike and 22,000 strike, with meaningful Call writing at 22,000 strike, then 22,100 & 22,300 strikes, while on the Put side, the 21,000 strike owned the maximum open interest, followed by 22,000 & 21,800 strikes, with writing at 21,000 strike, then 21,800 strike.
The volatility increased a bit after a sharp fall in the previous week, but remained below the 14 mark on the weekly basis, hence it is not worrisome for bulls. India VIX, the fear gauge, rose 0.57 percent to 13.69 from 13.61 levels. If the VIX spikes above the 16 mark, then bulls may turn uncomfortable, experts said.
Corporate Action
Here are key corporate actions taking place next week
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