Markets week ahead: Nifty may rise to 18,300; Q3 earnings, inflation data among key factors

On Friday, Sensex shed 452.90 points or 0.75% to end at 59,900.37, while Nifty 50 slipped 132.70 points or 0.74% to close at 17,859.45.

After trading on a positive note between January 2nd and 3rd, Indian markets entered into the red for three consecutive days between January 4th to 6th. In the last 3 trading sessions, Sensex has tumbled by 1,394 points and Nifty 50 fell by over 373 points. From January 4-6, the market cap of BSE-listed firms plunged by ₹4,90,293.28 crore to settle at ₹279.75 lakh crore.

Foreign portfolio investors were broadly net sellers across market instruments. As per NSE data, between January 2-6, FPIs pulled out ₹5,872 crore from equities, while they sold ₹1,240 crore from debt, ₹760 crore from debt-VRR, and ₹36 crore in the hybrid market.

Also, foreign institutional investors (FIIs) carried selling throughout the week. From January 2nd to 6th, FIIs have pulled out ₹7,813.44 crore from Indian equities.

On the other hand, the rupee closed the week broadly unchanged compared to the American currency. On Friday, the rupee depreciated against the US dollar to end at 82.72 as the greenback reached near a one-month high after strong US data that stirred up expectations of a further hawkish approach by the US Fed in their monetary policy.

Talking about the January 2nd to 6th weekly performance, Vinod Nair, Head of Research at Geojit Financial Services said, “Although the market started the year on a positive footing, investor sentiments took a blow towards the end of the week following the release of the FOMC meeting minutes, which revealed the Fed officials’ are determined to tame inflation by maintaining the aggressive stance.”

He further added, “The stock market trend has started to be impacted by the view and in anticipation of the heavy economic data, Fed policy, India Q3 results, and Union Budget expectations. In India, actual Dec auto sales data has provided a mixed glimpse as volume growth has come down post the festive season, and pent-up demand is diminishing. On concerns of a global recession, oil prices plunged sharply. While IT and Banking sectors were volatile in expectation of muted earnings.”

What factors will drive markets in the week between January 9-13:

According to Nair, investors will focus on the muted Q3 earnings season along with the release of key macroeconomic data such as inflation. The market is expected to maintain a cautious trend during the month.

Highlighting key factors, Ajit Mishra, VP – of Technical Research, Religare Broking said the coming week will mark the beginning of the earnings season, and the IT majors viz. TCS, Infosys, HCL Tech, and Wipro will announce their numbers during the week. Besides, banking heavyweight, HDFC Bank, will also declare its result along with several others. On the macroeconomic front, IIP and CPI Inflation will be unveiled on January 12.

India’s largest IT company in terms of market share, Tata Group-backed TCS will start the December 2022 quarterly season by announcing its financial results for the quarter on January 9th. Peers like Infosys and HCL Tech are also lined up to announce their Q3 on January 12th followed by Wipro on January 13. The largest banker in terms of market share and largest private banker, HDFC Bank will also be announcing its Q3 results on January 14. Others will follow suit going ahead.

In regards to IT sector Q3 results, Apurva Sheth, Head of Market Perspectives, Samco Securities said, back home, the result season of Q3FY23 will kick off with major IT companies reporting their quarterly numbers. The attrition rates of IT companies will be closely looked out for after they reached the peaks in Q2. Stock-specific movements will be prominent and as investors react to earnings misses and beats, they are advised to assess the company’s long-term potential rather than basing their investment decisions solely on quarterly performance.

Meanwhile, Shrikant Chouhan, Head of Equity Research (Retail), at Kotak Securities said, the IT industry is expected to face a tough H1CY23.

Further, Mishra added that apart from the domestic factors, the performance of the global markets will remain on the participants’ radar.

Also, market participants will keenly watch the inflation numbers of the US and China.

However, Religare Broking expert believes volatility would remain high across sectors with the beginning of the earnings season. Keeping in mind the scenario, he recommends preferring a hedged approach and avoid overtrading.

Where is Nifty headed?

In the week ahead, ICICI Direct expects Nifty to extend its consolidation in the 17800-18300 amid stock-specific action, ahead of the onset of quarterly earnings with IT companies. In its note, the brokerage said, a decisive close above 18300 would lead to a resumption of a directional uptrend.

As per ICICI Direct’s note, Nifty has retraced its 9-week rally by 50% over five weeks indicating a slower pace of retracement and inherent strength. Also, the index has strong support at 17500 as it is a confluence of 200-day EMA and equality with the September – October decline.

It pointed out that India’s VIX has remained flat on a weekly time frame despite the correction in headline indices indicating no major risk perception by participants.

In Rohan Patil, Technical Analyst, Samco Securities view, if we observe a broader time frame (weekly chart), the front-line index is trading between the 9 & 21 EMA which is placed at 18,070 & 17,826 levels. For the past three weeks, bears are making a strong attempt to drift below 17,800 levels but 21 EMA is acting as an anchor support for the Index.

Thereby, Patil said, “the volatility may continue over the short term with predominant weakness. On the lower end, support is visible at 17,750 levels while on the upper end, resistance can be seen at 18,250 levels, above which a bullish reversal may happen.”

Stocks to buy? 

ICICI Direct expects BFSI, PSU, IT, and infra sectors to be in focus during the ongoing consolidation. The brokerage’s preferred large-caps are — Reliance Industries, SBI, HDFC Life, L&T, Ultratech Cement, NTPC, Tata Steel/Hindalco, and Maruti Suzuki. While its preferred midcaps are — PFC, IDFC First Bank, PNB, KEC, NCC, IOC, GPPL, National Aluminium, Mahindra CIE, and Nelcast.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.