The healthy rally on Friday, the biggest in the current calendar year, helped the market recoup some of previous week’s losses and close with more than half-a-percent gain in the week ended March 3.
The fear of aggressive policy tightening by the US Federal Reserve (the Fed) given the elevated inflation, and worries of an economic slowdown, weighed on the market sentiment initially. But the comment by Fed officials later in the week favouring only a 25 basis point (bps) rate hike, and advising the US central bank to go slow on rate hikes, gave comfort to bulls.
Also, the Rs 15,446 crore raised by the Adani group by selling stake in four companies to GQG Partners upped the confidence of the investor community, which resulted in a relief rally in PSU bank as well as Adani stocks. Better-than-expected services PMI for February in India and China, too, improved market sentiment.
The market may remain positive for a few more days, but given the lack of domestic triggers, participants will focus more on global cues for further direction, experts said.
The Nifty50 climbed 129 points to 17,594, and the BSE Sensex rose 345 points to 59,809, but the broader markets performed better than the benchmarks as the Nifty Midcap 100 and Smallcap 100 indices jumped 2 percent and over 1 percent, respectively, during the week.
Last week’s northward journey was driven by banking and financial services, metals, and infrastructure and energy stocks, while technology, healthcare, and auto stocks were under pressure, which limited the upside.
“The outperformance of banking and financials is certainly encouraging, however, the participation of other sectors like IT, auto, and energy (in the rally) is equally important to strengthen the market recovery,” Ajit Mishra of Religare Broking said.
He expects volatility to remain high in the coming week. “Participants will be eyeing the IIP data scheduled on March 10. Besides, the performance of global indices, especially the US markets, will be in focus for cues,” he said.
The market will remain shut on March 7 for Holi.
Here are 10 key factors that will keep traders busy next week:
1) Fed Chair Powell’s testimony
On March 7, Federal Reserve Chair Jerome Powell will testify before the Senate Banking Committee regarding the economic outlook and monetary policy actions, and present the central bank’s semi-annual Monetary Policy Report.
On March 8, Powell will testify on the same issue before the House Financial Services Committee, which will be followed by a question and answer session, which will be closely watched by market participants.
The participants will look for a hint of the direction and pace of further rate hikes and its impact on the economy. Powell is likely to remain aggressive in his language, emphasising that the Fed is committed to bring inflation down to 2 percent at the cost of economic pain, and will pause rate hikes only after data shows that inflation is on a sustained downward path.
In the last policy meeting in February, the US central bank raised the target range of the Fed funds rate by 25 bps to 4.5-4.75 percent. The next policy meeting is due on March 21 and 22.
Apart from the testimony, next week it will also be important to watch the US unemployment rate and non-farm payrolls for February. Experts largely expect the unemployment rate to remain at 3.4 percent for the month gone by.
The market will also keep an eye on US bond yields and the Dollar index, which retreated a bit from recent highs to 3.96 percent and 104.53, respectively.
2) Global economic data points
Here are key global economic data points to watch out for next week, including the Bank of Japan’s interest rate decision, China’s vehicle sales for February, and US factory orders for January:
3) Domestic economic data points
On March 10, we will have industrial and manufacturing production numbers for January. Bank deposit and loan growth data for the fortnight ended February 24 will also be released on the same day.
Further, foreign exchange reserves data for the week ended March 3, too, will be announced on March 10.
In December 2022, industrial production increased 4.3 percent, lower than the 7.3 percent growth the previous month. Foreign exchange reserves fell for the fourth consecutive week, down by $325 million to $560.942 billion for the week ended February 24 as the Reserve Bank of India (RBI) utilised reserves largely to defend the Rupee, which was impacted mainly by global developments.
4) The Rupee
The rally in equity markets, FII inflows, strong services PMI data, and range-bound oil prices helped the Rupee appreciate by 78 paise, or 0.94 percent, to 81.97 against the greenback, from 82.75 the week prior. This was the best weekly gain since the middle of January 2023.
The currency remained in the range of 82.50-82.85 a Dollar for around three weeks, before appreciating from February 28 to close at a one-month high. Overall, the Rupee may stay positive but any hawkish statement by Fed officials in the next policy meeting, as well as in the testimony, may put pressure on the currency, experts said.
“We expect the Rupee to trade with a slight positive bias on improved global risk sentiment and fresh FII inflows. Weak crude oil prices may also support the domestic currency,” Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, said.
However, any pullback in the Dollar amid rising expectations of a hawkish Federal Reserve, and concerns over a slowdown in India’s GDP growth rate, may cap the upside and push the Rupee to higher levels, he added.
5) FII flows
Renewed buying interest in the later part of last week, largely due to inflows in Adani group stocks via block deals, supported the market sentiment, but we need to watch whether that sustains as experts expect the volatility in FII inflows to continue till we have a clear sign from the US Fed of a pause in interest rate hikes.
In fact, FII inflow is expected to be one of the key challenges to watch for in the coming financial year, apart from a change in the course of interest rates by the US Fed, and the outlook for exports.
FIIs have net bought more than Rs 6,000 crore worth of shares during the week largely due to Thursday’s heavy buying of over Rs 12,700 crore.
Domestic institutional investors (DII) remained on a buying spree with Rs 12,500 crore worth share purchases, thus playing a major supportive role as they may have bought quality beaten-down stocks post the recent sharp correction.
6) Adani group stocks
The recent big fundraise by promoters by selling stake in Adani Enterprises, Adani Ports, Adani Green Energy, and Adani Transmission to GQG Partners lifted Adani group stocks and raised confidence among investors.
But whether the current rally has enough steam to sustain further will be closely watched by Dalal Street. In addition, participants will also keep an eye on news developments, if any, with respect to the Adani group.
Among the group’s stocks, Adani Enterprises and Adani Ports saw the biggest recovery from their recent lows, up 85 percent and 73 percent, respectively. Adani Power, Adani Transmission, Adani Total Gas, Adani Green Energy, Adani Wilmar, Ambuja Cements, and ACC gained 14-28 percent from their recent lows.
7) Technical view
The Nifty50 closed above its 200-day EMA (exponential moving average) of 17,582 for the first time in eight sessions last Friday, and formed a long, bullish candlestick pattern on the daily charts. It also climbed back above the 200-day SMA (simple moving average). The EMA is also a daily moving average) of 17,404. On the weekly charts as well, a bullish candle with a long lower shadow was formed, indicating support-based buying.
Hence the next resistance area for the Nifty50 may be at around 17,600-17,800, followed by 18,000, which is a highly crucial psychological mark, whereas 17,250-17,450 is expected to be the support area going forward, experts added.
“Though the recovery in the index has eased some pressure, Nifty has multiple hurdles to cross to confirm the trend reversal. It has recently surpassed the resistance zone of the long-term moving average (200-day EMA). Now sustainability is critical to extend the rebound and inch towards the next major hurdle, i.e., the 18,000 level,” Mishra said.
Technically, Nifty is forming a downward-sloping channel by connecting the lower high and lower low formations. In a short-covering bounce, it regained its 200-day moving average (SMA).
“17,750 is acting as a hurdle. Above this, we can expect a short-covering rally toward 17,900. It will be difficult to chase a gap-up opening, but if Nifty manages to hold its initial gain, then positive momentum may continue. 17,500 / 17,350 will act as support during any correction,” Pravesh Gour, Senior Technical Analyst at Swastika Investmart, said.
8) F&O Cues
The weekly Options data indicated that the maximum Call Open Interest (OI) was seen at 18,000 strike, followed by 17,900 strike, and 17,700 strike, with maximum Call writing within 17,900-17,600 strike. Maximum Put OI was at 17,500 strike, followed by 17,000, and 17,400 strike, with Put writing at 17,500 strike, then 17,600 and 17,400 strike.
Per above data, 17,700 is expected to be the near term resistance for the Nifty50, followed by 17,900-18,000, with support at 17,400-17,500. The expected trading range may be between 17,300-17,900 in the coming sessions.
“If we look at the derivative data, the Put-Call ratio is at 1.17, and the short exposure of FIIs to index futures is 23 percent. So there is further scope for a short covering move,” Gour said. The Put-Call ratio was about 0.8 last Friday.
9) India VIX
Volatility cooled considerably in the last few sessions, with India VIX, the fear index, declining from 14.18 to 12.18 levels, down 14 percent on a week-on-week basis. Also it corrected 24 percent from its recent high of 16.01 on February 23. Since then it has been hitting lower highs.
The index dipped below the upward sloping long support trendline, but did not stay there during the week, and remained below all key moving averages on Friday. If it falls further or sustains around these levels, then it could give comfort to bulls, experts said.
10) Corporate Action
Hinduja Global Solutions and Marico will go ex-dividend, while KP Energy and Rhetan TMT will trade ex-split next week.