The benchmark indices lost around a percent each in the week ended December 6, dented by economic growth concerns, pause in rate cuts by RBI till Budget 2020 and uncertainty over US-China trade deal. Rising 10-year bond yield due to the expected spike in inflation hit banks. Hence, highly valued stocks also got corrected during the week.
The BSE Sensex was down 348.66 points at 40,445.15 while the Nifty50 closed below the 12,000 mark, falling 134.55 points to 11,921.50. The broader markets underperformed benchmark indices as the BSE Midcap index declined 2.77 percent and Smallcap index lost 1.6 percent.
Profit booking was seen across major sectors with Nifty Auto, Bank, Energy, FMCG, Infra, Metal and Pharma indices falling 1.4-3.4 percent. The IT stocks offered some respite with the index rising 2 percent, thereby, limiting the downside in benchmark indices.
Most experts expect the week ahead to be volatile along with some more correction adding that global factors will take the focus from domestic cues. Also, more stock-specific action could be seen in the coming week, according to them.
"Given weak growth and deteriorating fiscal situation, the current premium valuation is not likely to sustain. Having said that, falling interest rate, easy monetary policy across the globe and liquidity will limit the downside for the market. Considering this, we expect higher volatility and Nifty50 is likely to trade in the range 11,750-12,100," Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.
According to Jimeet Modi, Founder & CEO at SAMCO Securities & StockNote, markets are expected to remain volatile in the coming week as many factors, global and stock-specific activity will influence the bourses.
"US Fed Meeting outcome, advancement in Trump’s impeachment process will be major international events while listing of Ujjivan Small Finance Bank IPO, fundraising by Yes Bank will be some domestic factors traders can keep an eye on," he added.
FIIs turned net sellers after several weeks, selling Rs 3,857.81 crore worth of shares during the week which also caused selling pressure in the market, but DIIs remained net buyers to the tune of Rs 2,422.32 crore shares in the same period.
Here are 10 key things that will traders busy in the market week ahead:
US-China Trade Deal
Globally, the focus will remain on US-China trade deal and the Fed meet. The market is expecting the first phase deal between US-China to be signed in December especially before December 15 deadline when the tariffs on $156 billion in Chinese imports is set to take effect.
Hence on the back of rising optimism over trade deal and strong jobs report, all three major US stock indexes gained around a percent each on Friday.
White House economic adviser Larry Kudlow said that while December 15 remains the date when the next round of tariffs on Chinese goods will take effect, the reality is that constructive talks, almost on a daily basis hints that a deal might be in the offing.
In the week gone by, global market turned cautious due to a negative tweet by Trump that he is not in a rush to finalise a deal with China. US also imposed import tariffs on Argentina and Brazil due to accusation of the continuous devaluation of their currencies to USD. There were also vibes that China may retaliate over US support to Hong Kong, impacting the progressing trade deal.
Fed Policy Meet
The last policy meeting of Federal Open Market Committee this year will be held on December 10-11. Experts largely expect the US central bank to keep interest rate unchanged after three rate cuts this year and could turn more hawkish.
Federal Reserve recently hinted about steady interest rate due to the moderate pace of economic growth and low inflation in the US.
"In the last three years, Fed policy meet which is usually held during the second week of December used to attract high weightage since it defines the trend of the global interest rate for next year. Lower interest rate is & was a need of the global financial market which is slowing down. This time the market expects a dovish view with no hike in rates and to maintain the stance in CY20," Vinod Nair of Geojit said.
Advancement in Donald Trump's impeachment process will also be another major international event in the coming week.
The second national election in less than three years will be conducted in the United Kingdom on December 12. It is the most important event as it will decide the path for Britain's exit from the European Union.
It has been more than three years now after Britain voted to leave the European Union, but the exit has not happened yet.
So far, the poll suggests that Prime Minister Boris Johnson's party is well ahead of Labour Party which is lead by Jeremy Corbyn.
In 2016, Britons voted by 52-48 percent for Brexit, but parliament has been stuck in deadlock over the way forward. If Johnson wins the majority, he says Britain will leave the EU by January 31, 2020.
Industrial production data for the month of October and CPI inflation for November will be released on December 12.
The industrial production in September, the closest approximation for measuring economic activity in the country's business landscape, contracted 4.3 percent against a contraction of 1 percent in the previous month due to subdued performance across segments barring intermediate goods.
Analysts expect the IIP in October to see further contraction (around -5 percent) due to consistent weakness in major segments. Core industries which are 40 percent of IIP declined 5.8 percent in October.
On the other side, retail inflation in November is likely to inch up further over 5 percent against 4.62 percent in the previous month due to higher food inflation.
"Higher CPI numbers due to supply constraints will also act as an impediment for quick economic growth. The sooner the CPI numbers cool down the better it is for economic recovery," Jimeet Modi said.
After its policy meeting on December 5, RBI raised its CPI inflation projection upwards to 5.1-4.7 percent for second half FY20, but downwards to 4-3.8 percent for the first half of FY21.
International benchmark Brent crude futures rallied more than 3 percent and WTI over 7 percent during the last week after OPEC members agreed for additional cuts of 5,00,000 bpd for the first quarter of 2020, taking total production cut to 1.7 million barrels per day.
The OPEC nations surprised with additional cuts to avoid the oversupply in the global oil market, but there was a new development after the Friday meet with Russia, wherein Saudi Arabia stated that the total oil production cuts implemented will be 2.1 mbpd. Currently, they were limiting its oil production by 1.2 mbpd as agreed by the members during 2018.
Saudi further said that they will continue to voluntary cut its oil production by 4,00,000 bpd if all producers strictly maintain its full quota.
"The reason behind this move is the group expected the demand slowdown in the first half of 2020 and US continue with its expansion plans. After this move, the global demand-supply picture balanced a little with the market showing a smaller surplus of 0.5mbpd into the first half of 2020," said Sakina Mandsaurwala, Commodity Analyst at Narnolia Financial Advisors.
She expects this OPEC move to help balance the oil market and keep prices supportive at $55 per barrel on the Nymex. Also, if the US-China signs the phase one trade agreement, it would further boost the investor sentiment and help oil prices rally, she said.
Ujjivan Small Finance Bank Listing
On the domestic front, the key event to watch out for would be the listing of Ujjivan Small Finance Bank scheduled to be on December 12.
Experts told Moneycontrol that the stock could list with a premium of Rs 20-25 over its issue price of Rs 37, considering the hefty subscription of 166 times and earnings growth.
Ujjivan Small Finance Bank is the subsidiary of NBFC Ujjivan Financial Services.
The Nifty50 closed with a loss of 0.8 percent on Friday and shed 1.12 percent during the week, forming bearish candle on daily charts and Bearish Engulfing pattern on the weekly scale.
It indicated that there could be more selling pressure in coming days and if the index breaks crucial support of 11,800, which is unlikely, then it could fall to around 11,700-11,600 levels, experts feel.
"The short term trend of Nifty seems to have reversed. The formation of Bearish Engulfing could open up a larger weakness in the market in the next few weeks," Shrikant Chouhan, Senior Vice-President, Equity Technical Research, Kotak Securities told Moneycontrol.
"A decisive move below 11,800 levels could accelerate the downside momentum in the market. The near term downside targets to be watched at 11,660 in the next few weeks," he said.
Nagaraj Shetti, Technical Research Analyst at HDFC Securities advised traders and short term investors to be cautious and should try to reduce weak long positions at 11,950 and 12,000 levels.
Option data suggests there is a shift in the lower trading range for Nifty at 11,700 to 12,100 levels.
On the monthly options front, maximum Put open interest was seen at 12,000 followed by 11,500 strike, while maximum Call open interest was at 12,000 followed by 12,500 strike. Call writing was seen at 12,000 followed by 12,100 strike while Put writing was seen at 11,500 followed by 11,800 strike.
Last two weekly expiries had the highest Call base at 12,100, which finally resulted in the market weakness. The Call writers were active at 12,100 strike.
"The index is coming down to the crucial support zone of 11,800-11,850 where the noticeable Put base is placed. We believe the indices may enter a more prolong consolidation around the psychologically important levels of 12,000," said Amit Gupta of ICICI Direct.
India VIX fell by 1.87 percent from 13.90 to 13.64 levels on week-on-week basis due to higher options writing seen of late, which has kept indices in a range.
Here are corporate actions taking place in the coming week:
Apart from US-China trade developments, UK election and Fed meet, here are other key global data points to watch out for in the coming week:
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First Published: IST