Key Market Factors Likely to Engage Traders in the Upcoming Week

The recent performance of the Indian stock market has seen a notable shift, experiencing its first weekly loss in the past five consecutive weeks. This decline can primarily be attributed to profit-taking activities following the BSE Sensex’s achievement of a new all-time high and the Nifty falling just one point short of establishing a fresh record high. Furthermore, the cautious sentiment observed in global markets, triggered by rate hikes implemented by various central banks, coupled with the hawkish commentary provided by the Federal Reserve Chair, contributed to a dampened market sentiment.

The prevailing market sentiment witnessed a bearish shift, leading to a decline in the BSE Sensex by 405 points, settling at 62,979, and the Nifty50 experiencing a drop of 160 points to reach 18,665. This downward movement was observed across multiple sectors, as a majority of them faced selling pressure.

According to market experts, the ongoing selling pressure in the market may persist for a few more trading sessions as the market undergoes a period of consolidation. However, they believe that a significant market correction is unlikely to occur due to favorable domestic economic conditions and the decline in global commodity prices.

Although some volatility is anticipated in the upcoming truncated week, primarily driven by the monthly Futures and Options (F&O) expiry scheduled on June 29, the experts suggest that a possible trend reversal towards new highs cannot be ruled out in the future. The market’s trajectory will depend on various factors such as economic data, corporate earnings, global market trends, and investor sentiment.

The broader markets experienced a bearish sentiment, as the Nifty Midcap 100 and Smallcap 100 indices both witnessed a decline of 1 percent each. This downward movement can be attributed to investors booking profits after a robust rally in recent times.

Vinod Nair, Head of Research at Geojit Financial Services, has expressed the view that despite global concerns, the domestic market is not expected to undergo a significant correction. Nair attributes this expectation to favorable domestic economic indicators and a correction in international commodity prices, which are anticipated to sustain earnings growth on a quarter-on-quarter (QoQ) basis.

Please note that the market will remain closed on June 28 for Bakri Id, also known as Eid al-Adha. Bakri Id is an important religious festival celebrated by Muslims worldwide. During this holiday, financial markets in India, including stock exchanges, remain closed as per the trading holiday schedule set by the relevant regulatory authorities.

Top 9 Factors to Keep an Eye on Next Week

US Q1CY23 GDP Growth

Investors around the world are keeping a close eye on the final US GDP growth figures for the first quarter of the current calendar year (Q1CY23). The second estimates already indicated a slowdown in growth, with the US economy expanding by 1.3 percent in Q1CY23. This marks the second consecutive quarter of decline in growth, following a 2.6 percent growth in Q4CY22 and 3.2 percent in Q3CY22.

One of the key factors influencing this slowdown in growth is believed to be the series of interest rate hikes implemented by the Federal Reserve. From March 2022 to May 2023, the Federal Reserve consistently raised interest rates before pausing in its June policy meeting. These interest rate hikes were intended to manage inflationary pressures and maintain economic stability.

Investors are eagerly awaiting the speech by Federal Reserve Chair Jerome Powell, scheduled for June 28-29. Powell’s remarks will be closely monitored as they are expected to provide insights into the monetary policy direction of the Federal Reserve and its approach to managing inflation.

Investors should pay close attention to the results of the annual US bank stress tests, which are scheduled to be announced on June 29. These stress tests are conducted by the Federal Reserve with the aim of assessing the resilience and capital adequacy of large banks operating in the United States.

The primary objective of these stress tests is to ensure that the participating banks have enough capital to withstand adverse economic conditions, including severe recessions or financial market disruptions. By evaluating the financial health and stability of these banks, the Federal Reserve aims to ensure that they can continue lending to households and businesses even during challenging economic times.

Monsoon Progress

The progress of the southwest monsoon is being closely monitored by market participants as it holds significant importance for various aspects of the Indian economy, including the inflation outlook and overall economic growth. The Reserve Bank of India (RBI) considers monsoon patterns and their impact on agricultural output when formulating its inflation projections and monetary policy decisions.

This year, the monsoon arrived in Kerala on June 8, slightly later than its usual onset date of June 1, primarily due to the cyclone Biporjoy. However, since then, favorable conditions have facilitated the swift progress of the southwest monsoon, covering several states in a relatively short span of time.

According to the Indian Meteorological Department (IMD), India is expected to receive normal rainfall during the southwest monsoon season, despite the evolving El Niño conditions. The IMD’s earlier assessment suggested that the monsoon would likely remain within the normal range.

In the policy minutes released on June 22, the Monetary Policy Committee (MPC) led by RBI Governor Shaktikanta Das expressed concerns regarding the delayed monsoon. Governor Das emphasized the importance of closely monitoring the southwest monsoon, particularly in light of the potential El Niño weather pattern, and its potential impact on food prices in India.

In addition to expressing concerns about the delayed monsoon and its impact on food prices in India, RBI Governor Shaktikanta Das highlighted the elevated international prices of key food items such as rice and sugar. He emphasized that adverse climate events have the potential to rapidly alter the trajectory of inflation.

Price of Crude Oil

The stabilization and range-bound movement of oil prices in international markets have been observed amidst concerns about global demand, particularly in light of the increased possibility of more interest rate hikes. This scenario is favorable for oil-importing countries such as India. The international benchmark, Brent crude futures, has consistently remained below $80 per barrel for the fifth consecutive week, with a support level established around $70 per barrel.

During the past week, crude oil prices experienced a decline of 4.5 percent, reaching $73.6 per barrel. It is worth noting that this decline was accompanied by below-average trading volume. However, it is important to consider the context of the preceding six weeks, during which the trading volume was notably higher.

According to Saumil Gandhi, a Senior Analyst specializing in commodities at HDFC Securities, investors have been concerned about the demand outlook for crude oil. This apprehension stems from the aggressive rate hikes implemented by global central banks, which have had an impact on investor risk appetite and raised the possibility of an economic slowdown. Such a slowdown could potentially affect the demand for crude oil.

Despite the unexpected decline of 3.83 million barrels in US crude inventories last week, as reported by the government, the negative market sentiment persists. Market expectations had anticipated an increase of 0.32 million barrels, making the inventory drawdown a positive surprise in terms of supply levels.

Foreign Institutional Investors Flow

During the previous week, foreign institutional investors (FIIs) recorded a net buying of only Rs 1.5 crore in the Indian market. This relatively modest inflow can be attributed to profit-taking activities, potentially driven by concerns over rising valuations and the hawkish commentary from Fed Chair Jerome Powell.

However, when considering the monthly basis, FIIs continued their buying spree for the fourth consecutive month, with an inflow of nearly Rs 7,000 crore. This indicates an overall positive sentiment among foreign investors towards the Indian market over the medium term.

According to experts, the support of foreign institutional investors (FIIs) is seen as crucial for the market to make significant moves beyond the existing record highs. While domestic institutional investors have been supporting the market during major declines, the participation of FIIs is considered important for sustained upward momentum.

During the previous week, domestic institutional investors recorded a net buying of nearly Rs 1,700 crore worth of shares. This indicates their confidence in the market and their willingness to invest during periods of price corrections. Furthermore, the monthly net inflow from domestic institutional investors has surpassed Rs 6,000 crore, showcasing their continued positive stance on the market.

V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that foreign portfolio investors (FPIs) in India have shown a preference for certain sectors in their investment activities. According to Vijayakumar, FPIs have been significant buyers in the financials, autos, and capital goods sectors. These sectors have been performing well, and their future prospects appear favorable.

He holds the view that foreign portfolio investor (FPI) inflows into India are expected to moderate in the future. This anticipation is based on two primary factors: rising valuations in the Indian market and the prevailing rising interest rate scenario.

Upcoming IPOs

The upcoming week is set to witness significant activity in the primary market as three initial public offerings (IPOs) are scheduled to open for subscription. These IPOs include ideaForge Technology, Cyient DLM, and PKH Ventures, collectively raising over Rs 1,500 crore.

ideaForge, a drone manufacturing company, is set to launch its public issue on June 26, aiming to raise Rs 567 crore. The price band for the issue has been set at Rs 638–672 per share. Investors will have the opportunity to subscribe to the IPO from June 26 until June 29, when the issue is scheduled to close.

Cyient DLM, an electronic manufacturing services and solutions provider, is scheduled to launch its IPO on June 27, with the subscription window open until June 30. The company aims to raise Rs 592 crore through the IPO, which consists entirely of fresh issue of shares. The price band for the IPO has been set at Rs 250-265 per share.

PKH Ventures, a construction and development company, is scheduled to launch its shares offer on June 30. The bidding period for the offer will continue until July 4. However, the specific price band for the shares has not been announced yet.

Technical View

Technical analysis of the Nifty reveals the formation of a Dark Cloud Cover candlestick pattern on the weekly charts at a swing high. This pattern suggests the potential for a downtrend following the recent uptrend. However, it is worth noting that the Nifty has been consistently forming higher highs for the past 13 weeks, indicating ongoing bullish momentum.

Considering these factors, experts suggest that a short-term reversal in the trend, accompanied by a period of consolidation, may occur in the coming sessions. They do not rule out the possibility of a bounce back towards the previous record high of 18,887.60, which was achieved on December 1, 2022.

According to Arvinder Singh Nanda, Senior Vice President at Master Capital Services, the Nifty is currently trading above a crucial support area, which is around the 18,640 level. This support area also aligns with the vicinity of the 21-day Exponential Moving Average (EMA).

Nanda suggests that if the Nifty sustains a decline below this support area, there is a possibility of further downside towards the range of 18,560-18,500. This indicates that a deeper correction may occur if the Nifty fails to hold above the mentioned support level.

He believes that if the Nifty validates the 18,640 support level, it could potentially lead to a bullish reversal. In such a case, he suggests that the Nifty may experience an upsurge towards the levels of 18,780 and subsequently 18,887.

F&O Cues

With the monthly expiry approaching, there is a likelihood of increased volatility in the market. Option data analysis suggests that the range between 18,800 and 18,500 is expected to be a crucial zone for the Nifty in the upcoming sessions.

The maximum Call open interest is observed at the 18,800 strike, indicating that market participants have a significant number of Call options contracts at this strike price. This suggests that traders anticipate the Nifty’s price to potentially face resistance around the 18,800 level. The 19,000 and 18,900 strikes also show notable Call open interest.

On the other hand, the maximum Put open interest is concentrated at the 18,000 strike, suggesting that market participants have a considerable number of Put options contracts at this strike price. This implies that traders expect the Nifty’s price to potentially find support around the 18,000 level. The 18,800 and 18,700 strikes also show notable Put open interest.

Additionally, there is Call writing observed at the 18,700 and 18,800 strikes, which means traders are selling Call options at these levels, potentially indicating resistance or limited upside expectations in the near term. Put writing is observed at the 18,700 strike, as well as the 18,400-18,500 strikes, indicating that traders are selling Put options at these levels, potentially suggesting support or limited downside expectations in the near term.

India VIX

The India VIX, which is commonly referred to as the fear gauge, has continued to stay at lower levels for the third consecutive week. It has remained below the 12 mark, indicating relatively low volatility in the market. This low volatility environment has contributed to keeping the market range-bound despite the recent profit booking observed at the swing high.

During the week, the India VIX witnessed a modest increase of 3.6 percent and reached a level of 11.23. This uptick in the VIX suggests a slight rise in volatility compared to the previous week. It is worth noting that the VIX had largely traded within the range of the previous week.

Corporate Action

Several companies are scheduled to trade ex-dividend in the coming week. The list of companies includes:

1. Bajaj Auto
2. Bajaj Finance
3. Bank of Baroda
4. Escorts Kubota
5. Can Fin Homes
6. Tata Communications
7. Welspun India
8. SKF India
9. Aegis Logistics
10. GSK Pharma
11. Sona BLW Precision Forgings
12. Syngene International

When a stock trades ex-dividend, it means that the buyers of the stock on or after that date will not be eligible to receive the upcoming dividend payment. The dividend is usually paid to shareholders who hold the stock before the ex-dividend date. It’s important for investors to be aware of ex-dividend dates as it may impact their dividend income and trading decisions.

Investors should check the specific dividend payout details and other relevant information from the respective company announcements or consult with their financial advisors to make informed investment decisions.