Markets

7 key factors that may decide market direction next week

NEW DELHI: What a week it was! From Nifty50 hitting the historic 10,000-mark, a bevy of corporate (both domestic and global) releasing their June quarter results and high-voltage political drama in Bihar to stock market crash in Pakistan, the week was thrilling through and through.

On Friday, the domestic equity indices took a breather after hitting fresh peaks for four straight sessions, amid heavy selling in pharma and bank stocks.

The S&P BSE Sensex snapped its five-day winning streak to close 73 points lower at 32,310 with HDFC (up 3 per cent) being the top gainer and Dr Reddy’s (down 6 per cent) the worst laggard.

The broader Nifty50 ended in the red, but closed above the crucial 10,000 level. The index ended at 10,014 with 22 components in the green and 29 in the red.

On a weekly basis (July 21-July 24), the 30-share pack of BSE added 0.20 per cent while NSE’s Nifty gained 0.48 per cent.

During the week, while some financial results brought cheer to investors, a number of companies disappointed Street with their lower-than-expected numbers for Q1FY18.

For instance, Rana Kapoor-led YES Bank posted an impressive 32 per cent rise in its net profit at Rs 966 crore, driven by strong loan demand. The private lender also showed a great improvement in its asset quality as it recovered Rs 546 crore from a large cement account that had been classified as an NPA in the previous quarter. Reacting to this, shares of the bank hit new peak, getting further buoyancy after over a dozen of foreign brokerages raised target price of the stock.

On the contrary, heavyweights such as Dr Reddy’s, ICICI Bank, Bharti Airtel, Idea Cellular, Maruti Suzuki and Axis Bank dashed the stakeholders’ hopes with their below par performance. Among them, results of drug major Dr. Reddy’s and telecom firm Idea Cellular had the investors worried as their profit plunged to record lows.

Among other events, low-key Salasar Techno Engineering, which caught everyone’s attention with its just Rs 36-crore IPO getting gigantic bids for nearly Rs 10,000 crore earlier this month, made a stellar debut on bourses.

The stock got listed at Rs 259.15 on BSE, a 139.95 per cent premium to its issue price of Rs 108 per share. However, in a sharp U-turn, the stock breached lower circuit on Thursday (July 27). On Friday, the scrip settled at Rs 258 apiece, down 5 per cent.

That said, let’s have a look at the forthcoming events that are likely to chart market direction next week.

RBI monetary policy meet: The biggest determinant of market direction next week will be the Reserve Bank of India’s rate-setting meet, which starts on August 1 with results due on August 2 (Wednesday).

Although, a multitude of factors show the central bank is likely to go for a rate cut in its third bi-monthly monetary policy committee of FY18, nothing could be stated obvious, given the Governor Urjit Patel’s led-MPC’s surprising decisions in the past.

Inflation has been lower, well below the RBI’s inflation target of 4 per cent in medium-term. Monsoon so far has been in line with the expectations.

“Average monsoon rainfall in the country may further bring down the food prices. GST rates were neutral to the inflation outcome,” says IIFL in its report. Lower inflation rates can give bank enough room to cut the benchmark interest rates.

In its previous meet (June 6-7, 2017), RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25 per cent. Consequently, the reverse repo rate under the LAF remained at 6 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.5 per cent.

Next batch of Q1 earnings: Q1 results so far have been a mixed bag. In the coming week, next set of companies will announce their June quarter results. Among them, Reliance Power, Shree Cement and Siemens will release their numbers on Monday (31 July) while JSW Steel, Marico, Piramal Enterprises, Power Grid Corporation of India and Tech Mahindra are slated to announce April-June 2017 results on Tuesday, August 1, 2017. Bata India, Godrej Properties, Lupin, Punjab National Bank and Reliance Infrastructure will announce results on Wednesday, 2 August 2017 and Colgate-Palmolive (India), Indian Oil Corporation and Titan Company will announce theirs on Thursday, 3 August 2017.

Further, Dabur India and Mahindra & Mahindra (M&M) are scheduled to announce their financial results on Friday, 4 August 2017.

What the tech charts say: “The coming week will see the market continue to mark fresh highs, but at the same time, we will see a lot of volatility creep in,” says Milan Vaishnav, CMT. The 10,114 and 10,300 levels are likely to act as key resistance for the week, while supports should come in at 9,790 and 9,710 levels.

The FMCG counter may take a breather while pharma stocks may lose some sheen, baring outperformance on select counters. Energy stocks will continue to see pickup in momentum. No major outperformance is expected from infrastructure, smallcaps, PSU banks and realty stocks. Stock-specific action will be seen on the auto counter, Vaishnav adds further.

Foreign investments: Investments by FIIs (foreign institutional investors) and FPIs (foreign portfolio investors) will be one of the key drivers of stock market.

The foreign investors pumped in a total of Rs 22, 997.45 crore in domestic stocks in July (till July 28), shows NSDL data.

So far, overseas investors have invested a net sum of Rs 17, 0551.31 crore in Indian equities in 2017.

Geopolitical tensions: North Korea on Saturday conducted another successful test of an intercontinental ballistic missile (ICBM) that proved its ability to strike America’s mainland, drawing a sharp warning from the US President Donald Trump and a rebuke from China.

North Korean leader Kim Jong Un personally supervised the midnight launch of the missile on Friday night and said it was a “stern warning” for the United States that it would not be safe from destruction if it tries to attack, the North’s official KCNA news agency was quoted by Reuters in its report.

Reacting to it, the United States flew two B-1B bombers over the Korean peninsula in a show of force after recent North Korean missile tests, the US Air Force said in a statement on Sunday. The development will be watched keenly across the globe and is likely to have a bearing on the financial markets, including India.

BoE meet: The Bank of England will announce its latest policy decision on Thursday (August 3), when it will also release its quarterly Inflation Report.

“Most economists expect the Bank to keep rates at their record low to shore up economic growth, though some – notably large Japanese bank Nomura – are calling for a hike,” says Reuters in its report.

Global macro cues: Overseas, China will unveil manufacturing PMI data for July on Sunday, 30 July 2017. Eurozone consumer price index (CPI) data for July will be unveiled on Monday, 31 July 2017. US Non-farm Payrolls data for May will be unveiled on Friday, 4 August 2017 and US Unemployment Rate data for July will be unveiled on Friday, 4 August 2017.

These apart, monsoon progress back home, rupee movement against US dollar and crude prices are other crucial factors to steer market in the coming week.

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