Dalal Street Week Ahead | India, US inflation, crude prices, FII funds to determine D-St dynamics next week
Dalal Street Week Ahead | India, US inflation, crude prices, FII funds to determine D-St dynamics next week
Even as domestic equity markets posted solid gains last week, foreign institutional investors sold India equities worth Rs 9,300 crore. Going ahead, this is a key monitorable
Indian equity market logged its best week in the last two months, with the Nifty 50 and the Sensex rising 1.98 percent and 2.64 percent at the close on September 8.
The Nifty 50 managed to close beyond the crucial 19,800 mark at 19,819.95, while Sensex closed at 66,598.91. Going ahead, as August inflation numbers trickle in, it is important to monitor if the market momentum can sustain.
Among sectoral indices, metal, realty and media led gains in the week gone by. Broader markets also continued their rally, with the Nifty Midcap 100 index gaining more than the Nifty even as the advance decline ratio stayed high at 1.15:1. The Nifty Midcap and Smallcap indices have now posted substantial gains for the third consecutive week.
“Despite the US 10-year bond yield surpassing 4.3 percent, the dollar index scaling the 105 mark, and Brent crude trading at over $90, the Indian market displayed remarkable resilience. Bullish sentiment is strong, with hopes of the Nifty reaching the 20,000 mark this week,” Santosh Meena, Head of Research, Swastika Investmart, said.
Let’s check out the 10 key factors that would deternmine the Dalal Street dynamics next week.
Retail inflation
India’s headline retail inflation is expected to have declined in August but stayed well above the 6-percent upper band of the Reserve Bank of India’s (RBI) 2-6 percent tolerance range. According to a Moneycontrol survey of 21 economists, the Consumer Price Index (CPI) inflation likely fell to 7.0 percent in August from the 15-month high of 7.44 percent in July.
In the last monetary policy meet, the RBI had raised its CPI inflation forecast for the July-September period by 100 basis points to 6.2 percent and by 30 basis points to 5.4 percent for 2023-24 as a whole even as it left the repo rate unchanged at 6.5 percent for the third meeting in a row.
The Ministry of Statistics and Programme Implementation will release the retail inflation data for August at 5.30pm on September 12. This will give further insight into the RBI’s repo rate trajectory.
US inflation
On September 13, all eyes will be on the US CPI inflation. The consumer price index inched up in July for the first time in more than a year by 3.2 percent year-on-year. Analysts now expect a further uptick in August to 3.6 percent.
Core CPI, on the other hand, could edge slightly lower from 4.7 percent. After stripping out volatile food and energy items, BofA Securities, Barclays and TD Securities, expect August core CPI readings to come in at 0.2 percent month-on-month, and to fall to 4.3 percent on an annual basis.
Domestic economic data points
Investors will also look forward to industrial production data (IIP) on September 12. Economists expect India’s industrial growth to have increased to 5 percent. Industrial growth fell to a three-month low of 3.7 percent in June.
On September 14, the government will also release the wholesale price inflation data, followed by balance of trade as well as import and export numbers on the next day.
Oil prices
For the week, both Brent and West Texas Intermediate gained about 2 percent. Brent futures settled at $90.65 a barrel, while the US WTI crude settled at $87.51.
“Oil prices have rallied to 10-month high during the week as OPEC+ linchpin decided to extend 1.3 million barrels per day of voluntary cuts till December 2023 which, we believe, has the potential to push the global markets into a deficit of 1.5 mbpd by the end of Q42023,” Mohammed Imran, research analyst at Sharekhan by BNP Paribas.
Going ahead, the oil price trajectory will be decided by a tug-of-war between China’s slow demand recovery vis-à-vis production cuts.
FII flow
Even as domestic equity markets posted solid gains last week, foreign institutional investors sold India equities worth Rs 9,300 crore. This was largely on the back of fresh resurgence in the US dollar index and subsequent spike in US treasury yields.
“Sharp currency weakness in China and Japan against the dollar also weighed heavily on the local currency leading to foreign fund outflows. If the US treasury yields continue to rise and other currencies falter against the US dollar further, foreign fund inflows may remain choppy and overseas investors could exit emerging markets, including India,” Shrikant Chouhan, Head of Research (Retail) at Kotak Securities Ltd, said.
Technical levels
From a technical perspective, analysts said that the Nifty has broken out of a bullish flag formation, suggesting the potential for a significant upward move. However, it faces a critical psychological hurdle at the 20,000 mark.
As per Meena of Swastika Investment, if Nifty struggles to breach this level, there’s a possibility of it forming a double top pattern around this point, which could trigger profit booking. On the downside, the range of 19,600–19,500 is a robust demand zone, providing support.
F&O cues
Option data also indicated that the Nifty may hit the next crucial resistance of 20,000 mark in coming sessions, which has the maximum open interest as well as Call writing, with support at 19,700-19,600 levels.
On the weekly options front, the maximum Call open interest (OI) was seen at 20,000 strike, followed by 20,200 & 19,900 strikes, with meaningful Call writing at 20,000 strike, then 20,200 and 20,500 strikes.
On the Put side, the maximum open interest was at 19,600 strike, followed by 19,700 strike & 19,000 strike, with Put writing at 19,800 strike, 19,700 strike and 19,000 strikes.
Primary market action
As per the IPO schedule, Ratnaveer Precision Engineering and Rishabh Instruments will be the two new mainboard listings on September 11.
Furthermore, sewerage solutions company EMS will close for subscription on September 12. Meanwhile, RR Kabel will open for subscription on September 13, followed by SAMHI Hotels and Zaggle Prepaid Ocean on September 14.
On the SME board, IPOs of Jiwanram Sheoduttrai Industries, Unihealth Consultancy and Meson Valves India will close for subscription on September 12. On the same day, Chavda Infra and Kundan Edifice will open for subscription.
Global economic data points
The European Central Bank will hold interest rates steady on September 14, according to a majority of economists polled by Reuters, but just under half expect one more rise this year to bring down inflation.
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