FII flows, Inflation, IIP data, Q4 results among major key factors to dictate markets in week ahead

In the holiday-shortened week from May 2nd to May 5th, Sensex and Nifty 50 closed with an upside of nearly 1%.

On Friday, Sensex shed 694.96 points or 1.13% to close at 61,054.29, while Nifty 50 plummeted by 186.80 points or 1.02% to finish at 18,069. HDFC and HDFC Bank recorded heavy losses on Friday with a downside of nearly 6% each.

However, overall, the weekly drop is nearly 3% in HDFC Bank and that of HDFC is over 2%. Sensex gained 443 points or 0.7%, and Nifty 50 surged by over 171 points or 0.96%.

Ajit Mishra, VP – of Technical Research, at Religare Broking said, “Markets settled almost unchanged in a volatile week amid mixed signals. Initially, the tone was positive, which further strengthened on the weekly expiry day however a sharp cut in the HDFC twins on the final session erased all the gains. Consequently, both the benchmark indices, Nifty and Sensex, ended unchanged at 18,069 and 61,054.29 levels respectively.”

Meanwhile, in terms of sectoral indices, Mishra added that they traded mixed wherein auto, energy, and FMCG posted decent gains while banking, realty, and pharma settled lower.

The broader indices managed to end higher for yet another week and gained in the range of 0.5%-1.0%.

Also, Vinod Nair, Head of Research at Geojit Financial Services said, “The domestic market continued to be positive at the beginning of the week, aided by strong FII inflow and favorable domestic macroeconomic data. The manufacturing PMI and the GST collection in April were better due to an increase in new business, a strong pickup in consumer demand, and improved supply chain conditions.”

As of now, Nair added, “Half of the Nifty 50 companies announced their results, and the earnings growth of those stocks were below estimates, mainly due to weak performance by IT, metal, and cement stocks. While the results for banks, financials, and auto were better than estimates.”

However, the Geojit expert also said, “Volatility emerged in the global market due to the FED’s concerns over elevated inflation despite softening its language on future rate hikes and the ECB’s hawkish policy action.”

What to expect in the week ahead?

In his weekly outlook note, Nair said, “We expect continued foreign inflows and favorable domestic macroeconomic conditions to protect the downside. The Q4FY23 earnings estimate of the Nifty is at 11% YoY; therefore, the next set of results is likely to be better and will support the investor sentiment. In the week ahead, the release of US and Indian CPI inflation data will be keenly watched by the market to get a direction.”

Similarly, in the coming week, Mishra said, “Participants will be eyeing macroeconomic data viz. IIP and CPI for cues on May 12. Besides, the US inflation, which is scheduled on May 10, will also be on their radar.”

On the earnings front, Mishra said, “Dr. Reddy, LT, Asian Paints, Eicher Motors, Cipla, HPCL, and Tata Motors are some of the prominent names who will announce their numbers during the week.”

As per Mishra, markets are likely to spend some time around the current levels, after the sharp slide in the banking index. Meanwhile, rotational buying in other key sectors like auto, FMCG, energy, and IT would continue to offer trading opportunities.

In regards to Nifty 50, Mishra said, “17,850 will continue to act as crucial support while the upside seems capped at 18,350 levels.”

To investors, Mishra added, “We thus recommend focusing on stock selection and overnight risk management until Nifty resumes the trend.”