10 key factors that will influence markets sentiment in the week ahead

On December 1st, Sensex registered a new lifetime high of 63,583.07, while the Nifty 50 also garnered a fresh historical high of 18,871.95 before correcting the next day. Between November 22 to December 1st, both benchmarks have gained by at least 4% each. 

However, on Friday, markets pulled back from their upbeat stance. Sensex closed at 62,868.50 down by 415.69 points or 0.66%. While Nifty 50 shed 116.40 points or 116.40% to end at 18,696.10. The downside was due to broad-based profit booking in large caps. Auto stocks took the most beating, while notable downside was seen in IT, banking, and consumer durables stocks. Metal stocks outperformed their counterparts.

In the week ahead, markets will look into factors such as major countries’ economic data, RBI’s monetary policy, coupled with foreign funds flow, and corporate actions among others. Let’s check out 10 key factors that will influence Indian markets this week.

1. RBI policy:

The central bank’s December policy will be the highlight of this week for market participants. While expectations of a 35 basis points hike are on the card in this upcoming policy, however, the possibility of another 50 basis points hike for the fourth time in a row is not ruled out.

Since May 2022, RBI has hiked the repo rate by a whopping 190 basis points — taking the key rate to 5.9% as of now. The rate was hiked by 50 basis points for the third consecutive policy. The reason behind the aggressive approach was multi-year high inflation. But in October, inflation has eased to below the 7% mark, raising hopes for a slower pace in rate hikes.

In its report, Reliance Securities said, “The RBI is likely to opt for slower pace of hikes in the forthcoming meeting. The RBI has already hiked the repo rate by 1.9% in four consecutive actions since May this year, in response to the high inflation which has been consistently breaching upper end of RBI’s tolerance band. India’s retail inflation may be moderating after hitting a peak recently. We expect market to remain volatile in the coming weeks.”

On the global front, the stock brokerage expects the Federal Reserve to continue raising interest rates and hold them at a higher level until inflation is under control and at the 2% level.

2. Nifty, and Bank Nifty:

Sumit Pokharna, Vice President – Fundamental Research, at Kotak Securities said, “We believe Index valuation needs to be seen in conjunction with relative earnings growth potential. Nifty is trading at PE of 19.8x on FY24E and 17.1x on FY25E earnings and Nifty earnings are expected to grow by 16.3% in FY24E and 15.5% in FY25E.”

At present, Nifty 50 is trading at t it’s one of the lowest volatility post-pandemic. The benchmark clocked a fresh historical high of 18,871.95 on December 1st before correcting it the next day. Both Sensex and Nifty 50 have climbed by nearly 4% each between November 22 to December 1. They extended record-high gains during these days.

Going ahead, ICICI Direct said, “We maintain our structural positive stance and expect the index to gradually head towards 19400 in coming weeks while midcaps to outperform in coming weeks. Strong support is now placed at 18300 levels. Use dips to create long positions.”

Meanwhile, Rupak De, Senior Technical Analyst at LKP Securities said, “Over the near term, sentiment is likely to remain sideways, with 18,500-18,800 to be the crucial range. A decisive breakout from either band may induce a clean directional move in the market.”

In regards to Bank Nifty, Rupak De said, the daily RSI has entered a bearish crossover. Over the short term, the trend is likely to remain sideways to negative. On the lower end, support is visible at 42,900/42,700. Resistance on the higher end is visible at 43,200/43,500.

3. Economic data:

Countries like India, the US, the UK, and Europe will announce their services PMI data for November month on December 5. Also, RBI’s MPC meeting for December policy will begin on Monday. US will also announce their factory orders for October and non-manufacturing PMI for November on Monday.

On December 6, Germany will present its factory orders for October, while the UK will announce its construction PMI for November. On December 7, RBI’s policy outcome on the repo rate will be announced, while the US will announce its non-farm productivity data for Q3 on this day. Also, the German Industrial Production print for October and Europe’s Q3 GDP is scheduled for Wednesday.

On December 8, the US will present its initial jobless claims. Whereas on December 9, the US will announce its Producer Price Index for November and Michigan Consumer Sentiment Index for December month.

4. Crude oil prices:

The performance in oil prices will be keenly watched after OPEC+ decided to keep their existing policy unchanged in a meeting on Sunday. In the existing policy, a group of 23 oil-producing nations known as OPEC+ planned oil production cut by 2 million barrels per day, or about 2% of world demand from November till the end of 2023. OPEC+ decision comes two days after the Group of Seven (G7) nations and Australia decided to impose a price cap to the tune of somewhat $60 on Russian oil.

Last week, crude oil prices climbed in anticipation that OPEC+ may further cut production. However, with OPEC+ now planning to stick to their existing policy, chances are oil prices may come under pressure in the week.

ICICI Direct expects Nymex crude oil prices to rise further to $88.00 level in the coming week while the downside can be used as a buying opportunity.

5. Rupee:

Last week, the Indian rupee appreciated as the dollar lost its 105 support levels. The greenback dived to its lowest level since July after US Federal Reserve Chair Jerome Powell’s comment hinted at a dovish stance in the forthcoming policy. Powell’s remarks sparked hopes that the central bank could scale back in the pace of rate hikes as soon as the next meeting. Also, FII inflows and a rise in risk appetite in the global markets supported the Indian currency.

ICICI Direct expects the rupee likely to appreciate back to 80.50 levels in the coming week amid weakness in the dollar and a rise in risk appetite in the global markets.

In its report, the stock brokerage said, “Dollar has broken its major support level of 105 levels and is moving towards 104 levels on the expectation that Fed will reduce the pace of rate hike and is on track to increase interest rates by 50bps at its upcoming meeting. US Federal Reserves will be less aggressive

with interest rate hikes in the coming meetings, as it takes time for the full effects of those increases to ripple through the economy.”

6. Foreign funds flow:

Foreign portfolio investors (FPIs) started December on a buying note in Indian equities to ₹7,437 crore in the first two days of the month. In November, FPIs pumped in ₹36,239 crore in the equities — making it the second highest monthly inflow in 2022 after August where FPIs invested ₹51,204 crore.

Meanwhile, FIIs invested ₹1,351.17 crore so far in December. In the previous month, FIIs infused around ₹22,546.34 crore in the equities.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services believes that the most important factor determining FPI strategy is the movement in the dollar index. He added, “When the dollar index moves up and is expected to trend up, they sell. Conversely, when the dollar index declines and is expected to trend down, they buy. Going forward, India will get its fair share of FPI money. But the high valuation in India will be a deterrent.”

7. Corporate actions:

Four stocks will turn ex-dividend this week, while one will become ex-bonus.

Panchsheel Organics will turn ex-dividend on December 5 for its interim dividend of ₹0.8 per equity share for the fiscal year ending March 31, 2023. Since Panchsheel stock has a settlement type ‘T+1’, its record date is the same as the ex-dividend date.

Hinduja Global Solutions will turn ex-dividend on December 7 ahead of its record date on December 8. The company declared a second interim dividend of ₹5 per share (50% of the face value of ₹10 each) for fiscal FY23.

Aptus Value Housing Finance will turn ex-dividend on December 8 ahead of its record date on December 9. It will pay an interim dividend of ₹2 per equity share for the current fiscal.

Can Fin Homes will also turn ex-dividend on December 8 ahead of its record date that is scheduled on December 9. The NBFC will pay an interim dividend of ₹1.50 per share for the financial year 2022-23.

BLS International Services has fixed December 10 to identify eligible shareholders for a bonus issue in the ratio of 1:1. The company will turn ex-bonus on December 8.

8. IPOs and listing:

Dharmaj Crop Guard is likely to list on Thursday, while the finalisation of share allocation is most likely on 5th December 2022 i.e. on Monday. The IPO subscribed by a massive 35.49 times. The company’s price band for the IPO was ₹216 to ₹237 per equity share.

Also, Uniparts India will carry the process of its IPO right from the finalisation of the allotment of equity shares to the transfer of shares most likely this week on December 7. The ₹835.61 crore IPO which was launched from November 30 to December 2nd — subscribed by a whopping 25.32 times.

9. F&O:

According to ICICI Direct, on the F&O front, no major activity was observed last week as the focus was more on the cash segment. However, FIIs continue to increase their long bets in index futures and they bought another ₹680 crore last week. Their net longs have increased further to nearly 96000 contracts which is the highest seen since April 2019. In the stock futures segment, they sold over ₹200 crore while in Index options segment FIIs have bought over ₹14,400 crore.

In future recommendations for the coming week, ICICI Direct suggests buying in Bharat Forge Dec in the range of 851-855 with a target of 905 and a stop loss of 824. On the other hand, the stock brokerage recommends selling in Eicher Motors Dec future in the range of 3345-3375 for a target of 3100 and a stop loss of 3518.5.

10. Auto stocks:

The auto stocks will be in focus after their monthly sales figures.

Mitul Shah – Head of Research at Reliance Securities said, “overall Auto sales delivered mixed performance within Auto segments, supported by strong urban sales but slower rural recovery. Moreover, the success of new launches and ease on supply constraint benefitted sales during the month. However, 2Ws remained subdued despite improvement. Seasonally industry declines in double-digit during post festival month due to demand moderation and inventory de-stocking.”

Meanwhile, Arun Agarwal, Deputy Vice President – Fundamental Research, at Kotak Securities said, “In November 2022, most auto companies reported lower volumes as compared to the numbers of October 2022. However, on a YoY basis (over November 2021), most auto OEMs reported an increase in sales volumes. We estimate the domestic passenger vehicle industry’s November 2022 volumes to have declined over October 2022. In the passenger vehicle segment, a strong order book will likely support sales in the near term.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.