The market delivered 3 percent return in the week ended October 18. This was backed by renewed FII inflow along with consistent DIIs money, government's initiative towards strategic disinvestments — especially after stellar response to IRCTC — stable earnings and favourable global cues including Brexit deal.
With the rally in two consecutive weeks, benchmark indices recouped all its losses seen in the week ended October 4. The BSE Sensex ended at 39,298.38 and the Nifty50 at 11,661.90.
Considering the favourable domestic and global cues along with FII flow, the positive momentum amid some consolidation is expected to continue in coming truncated week as well. But, if any major correction happens, it could only be due to global cues, experts feel.
"Markets witnessed buying from FPIs and DIIs on improved sentiments and better prospects going ahead for the economy. FPIs have initiated buying equities aggressively and have covered their short positions which has relieved Mr. Market and cleared a major overhang," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.
"Considering a holistic perspective of corporate tax cuts, recapitalization of PSU banks, FPIs paring their short positions, continued domestic inflows – all point to one thing that maybe the worst is behind us. But unless something dramatically goes haywire on a global front, Nifty50 is all set to touch new highs before Christmas," he said.
The gains seen during the week were across sectors with Nifty Auto, FMCG, Bank, Energy, Infra, Metal and Pharma rising 3.5-8 percent.
The broader markets also participated in rally as the Nifty Midcap index gained 4 percent and Smallcap index rose 3 percent.
"Market's rally is currently in a catch-up phase and is likely to percolate to individual sectors which were largely underperformers. Small and Midcaps are likely to witness buying interest," Modi said.
The market will remain shut on October 21 of account of the Maharashtra Assembly elections.
Here are 10 key things that will keep traders busy this week:
In the coming week, the market will first react to earnings of Reliance Industries (RIL), HDFC Bank and Axis Bank. RIL earnings were a mixed bag while HDFC Bank reported strong numbers for quarter ended September 2019.
The coming week will be very important in terms of earnings as over 300 companies will announce their July-September quarter results and the key thing to watch out for would their commentary.
Of that 16 are Nifty50 companies which are Axis Bank, Bharti Infratel, UltraTech Cement, Bajaj Finance, Kotak Mahindra Bank, Asian Paints, Bajaj Finserv, L&T, Bajaj Auto, HCL Technologies, Hero MotoCorp, ITC, Maruti Suzuki, SBI, Tata Motors and ICICI Bank.
Among others, RBL Bank, M&M Financial, ICICI Prudential, Havells, HDFC Life, Biocon, Bandhan Bank, Colgate, InterGlobe, United Spirits, Marico, HDFC AMC, etc. will be key to watch out for.
Brexit deal delayed
The delay in Brexit deal may have some negative impact on global markets initially in coming week. But India may react on October 22 which could be short lived.
British MPs on October 19 voted to back a motion that delays the vote on British Prime Minister Boris Johnson's Brexit deal struck with the European Union (EU).
Lawmakers backed an amendment which effectively forces the government to request an extension until January next year, while they scrutinised the proposed domestic legislation to enforce the deal with Brussels.
But Johnson declared in Parliament soon after the vote that he will not be seeking an extension to the end-October Brexit deadline, adding that "I will do all I can to get Brexit done by October 31. (with inputs from PTI).
SBI and ICICI Bank
Country's largest lenders will release their quarterly earnings report card on Friday and Saturday respectively.
SBI is expected to report a degrowth in Q2 profit due to one-time deferred tax assets impact, but there could be support from sale of stake in SBI Life, while net interest income and loan growth could be more than 11 percent each YoY, with improvement in asset quality.
"We expect SBI's NII growth to remain at 12-13 percent YoY with no large reversals as slippages to be lower than Q1FY20 (no agri/recovery PSU slippage) but we could see higher increments to stressed book (even the under RBI framework)," Prabhudas Lilladher said.
In case of ICICI Bank also, brokerages expect decline in profit due to higher deferred tax assets' impact, but overall earnings are expected to be strong with strong pre-provision operating profit (PPoP), loan growth better than industry and lower slippages.
"We expect a solid PPoP growth of around 28 percent YoY led by healthy loan growth (around 15 percent YoY) and better NII growth (24 percent YoY). We expect reduction in gross NPLs on the back of write-offs and slippages at around 2 percent levels. Below investment grade portfolio will remain stable. Higher DTA would impact reported earnings," Kotak Institutional Equities said.
ITC, Maruti Suzuki and Tata Motors
The cigarette-hotel-to-FMCG major is expected to report 25-35 percent year-on-year growth in September quarter profit due to cut in corporate tax rate while there could be 6-8 percent increase in revenue YoY with cigarette volume growth around 2-3 percent against 5.5 percent in year-ago period. Other business segments could report steady growth.
"We model 2.5 percent YoY increase in cigarette volumes and 3.5 percent increase in realization (portfolio-level). We forecast 8 percent YoY growth in cigarette EBIT," said Kotak which expects 6.5 percent increase in revenue, 34 percent in profit, 8.7 percent in EBITDA and 80bps in margin YoY.
Meanwhile, overall auto companies are likely to report weak set of earnings for the quarter due to lower sales and increase in discount to boost sales.
Tata Motors is expected to continue to report loss in Q2 after 45 percent decline in standalone sales volumes and flat JLR sales YoY, but there could be support from cost-reduction efforts and currency benefits.
Maruti Suzuki is likely to report 50-60 percent decline in Q2 profit with more than 24 percent fall in revenues YoY on the back of 30 percent drop in volumes, but net realisation may increase 5-8 percent YoY.
FII flow would be watched closely as it remained strong for the week after several weeks and was among key reasons for market rally. They net bought Rs 3,200 crore worth of shares during the week and they have been net buyers for last six straight sessions on improved sentiments and better prospects going ahead for the economy, especially after several government measures.
As a result, if the flow continues, then they could be net buyers for October month soon after having net sellers for previous five consecutive months.
"It shows the change in stance from FIIs which should be supportive for the broader markets in the coming weeks," Amit Gupta of ICICI direct said.
On other side, domestic institutional investors remained supportive as they net bought Rs 2,184 crore in equities, taking total October month's net buying to Rs 6,800 crore.
US-China trade deal
Globally, the developments over US and China trade, after their partial deal, would be closely watched.
The US and China has finished the first phase of trade deal, but the twist is that the trade deal will not get signed before Donald Trump meets Xi in Chile at the APEC summit on November 16 and 17.
US Treasury Secretary Steven Mnuchin said that an additional round of tariffs on Chinese imports will likely be imposed if a trade deal with China has not been reached by December, but he also added that he expected the agreement to go through. With this, October tariffs are off the table, but December tariffs are now in focus.
On the other side, the Chinese commerce ministry recently said that China hoped to reach a phased agreement with the United States over trade as early as possible, and make progress on cancelling tariffs on each others' goods. The IMF welcomed signs of de-escalation in the US-China trade tensions, but it said an urgent updating of trade rules was needed to restore strong growth to the global economy.
The Nifty pared its losses and rebounded to completely change the scenario in favour of the bulls as it closed well above the previous swing high, breaching the resistance trendline drawn from 12,103 and also with improved breadth. The index formed bullish candle on daily (Friday) as well as weekly charts.
Experts feel the correction can't be ruled out initially after six-day rally in a row, but overall the market may remain in a positive mood and if it decisively crosses 11,700 levels then there could be further rally on cards as the market has been seeing higher highs -- higher lows formation.
"Technically prices seem affirmative in its structure. A decent rally which was further expanded due to short covering by participants. So we now do see a good base around these lows of 11,250-11,300. For Nifty to take out 11,700 and move forward on the closing basis there is no stopping for an upside move to 12,130. We believe the only hurdle is now seen at 11,700 and that is what needs to be taken out," Mustafa Nadeem, CEO, Epic Research told Moneycontrol.
Option data, so far, suggested that there was a shift in higher trading range for the Nifty to 11,500 to 11,800 levels.
On the monthly options front, maximum Put open interest was seen at 11,000 followed by 11,400 and 11,500 strikes while maximum Call open interest was seen at 11,700 followed by 12,000 strike.
Put writing was seen at 11,500 then 11,600 strike while Call unwinding was seen at all the immediate strikes with marginal Call writing at 11,900 strike.
"The volatility which was hitting its resistance of 18 in the last few weeks has finally started cooling-off thus encouraging more Put writers in the indices. 11,200 Put base has been shifted to 11,500 which should remain good support and the Nifty should move towards 11,800 in the coming days," Amit Gupta of ICICI direct said.
India Volatility Index fell 7.06 percent during the week to 15.93 levels.
Here are corporate actions that will be taking place in coming week:
Apart from focus on Brexit and US-China trade deal developments, here are other global data points which will be key to watch out for:
Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
First Published: IST