Dalal Street Week Ahead | India, US inflation, quarterly earnings among 10 key factors to watch next week

The market recovered intelligently from its weekly low for the week ending October 6 and concluded the week moderately up, snapping a two-week losing streak. This may have been due in part to oversold conditions. The recovery may continue into the following week, but volatility cannot be ruled out due to additional stock-specific activity and the start of the September quarter earnings season, according to experts. Participants will also closely monitor the September inflation figures from the United States and India, in addition to the FOMC minutes.

The equity market uptrend was primarily bolstered by declining oil prices, positive domestic PMI data, and the Monetary Policy Committee's decision to maintain the status quo in the repo rate. However, the RBI continues to consider inflation a significant risk, and its tone was hawkish on Friday when it announced open market operations (OMO) to manage liquidity, which resulted in a substantial increase in the yield on 10-year bonds. Gains were constrained by the substantial FII outflow caused by elevated US bond yields and the US dollar index.

During the week, the BSE Sensex increased by 167 points to 65,996, the Nifty50 rose by 15 points to 19,654, and the Nifty Midcap 100 index declined by 0.6 percent, whereas the Smallcap 100 index increased by 0.7 percent. Pressure was felt on the automotive, banking, energy, pharmaceutical, and oil & gas sectors, while technology and real estate equities trended higher.

"A stronger dollar index and rising US bond yields have deterred foreign investors, resulting in market weakness." "Additionally, strong employment figures from the United States this week have sparked apprehension regarding a possible interest rate hike by the Federal Reserve, as evidenced by the surge in US bond yields that suggests an imminent interest rate hike," said Vinod Nair, director of research at Geojit Financial Services.

Additionally, he stated that the market has been affected by the RBI's hawkish posture, especially in its management of liquidity to combat inflationary risks. Nevertheless, the market has received some solace from robust domestic PMI data and corrections in crude oil prices.

He believes that starting next week, the focus will shift to quarterly results from the IT and finance industries.

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Here are 10 key factors to watch out for:

Corporate Quarterly Earnings

CPI Inflation

The CPI inflation rate for September, which is released on October 12, will also be closely monitored by market participants in addition to earnings. As a result of the decline in LPG and vegetable prices, the CPI inflation rate, which is a crucial metric for the MPC, is anticipated to further decline.

"Since August, when it was 6.8 percent year-over-year, we estimate that CPI inflation decelerated significantly in September to 5.3 percent, returning to the RBI's target range of 2-6 percent after a two-month absence." According to Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays, the headline rate probably declined due to a reduction in food and petroleum prices. Bajoria further stated that core inflation probably remained stable, enabling the RBI to maintain policy rates unaltered.

Furthermore, reports on foreign exchange reserves for the week ending October 6 and industrial output data for August are scheduled to be disseminated on October 13 and October 12, respectively. These reports pertain to the months of September and balance of trade and WPI inflation.

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FOMC Minutes & US Inflation

Global investors will closely monitor the FOMC minutes for the September policy meeting, which will be released on October 11th, and US inflation, which is scheduled for October 12th, as well as the upcoming speeches of several Fed officials.

Inflation, an essential data point for the Federal Reserve to consider when determining the fed funds rate, is expected to moderate in September from August's 3.7 percent to August's 3.6 percent, but to remain well above the Fed's 2 percent target. Fed officials estimate inflation to reach 2.6% by the end of 2024 while ruling out a severe recession, as indicated by the Fed's decision to leave interest rates unchanged at its September meeting. August's core inflation rate was 4.3%, down from 4.7% the previous month.

China will also disclose its September inflation data. In August, the inflation rate was 0.1%.

Global Economic Data Points

Here are key global economic data points to watch out for:

FII Flow

Foreign institutional investors sold a net Rs 8,400 crore worth of shares in the cash segment during the previous week as the US 10-year Treasury yield rose to a 16-year high and the US dollar index reached its highest level since November of last year. Domestic institutional investors were able to offset the FII outflow, but the outflow may persist until US bond yields and the dollar index cool down, according to experts.

In the first week of October, DIIs net bought shares worth Rs 4,400 crore, while the US 10-year Treasury yield concluded the week at 4.8% and the US dollar index at 106.10.

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Oil Prices

As India is a net oil importer, the sharp decline in oil prices from a 10-month peak was positive for the Indian equity markets. Oil prices were affected during the week by rising US bond yields, a strengthened dollar, and global demand concerns. International benchmark Brent crude futures corrected by 8.26 percent during the week, the largest weekly loss since March, to settle at $84.58 a barrel, continuing downtrend for third consecutive week from the high of $95.96 a barrel.

After a precipitous decline in price, Saumil Gandhi, senior analyst - commodities at HDFC Securities, expects the crude oil price to consolidate in a lower-end range with a negative bias.

Technical View

The Nifty50 exhibited a strong recovery after defending the 19,300 level and ended a two-week losing trend. On the weekly charts, the index has formed a bullish candlestick pattern with a small body, a long lower shadow, and a small upper shadow, resembling a Hammer candlestick pattern, which is a bullish reversal pattern. This raised prospects for northward journey in coming sessions, which if comes true in following trade then 19,800-20,000 can't be ruled out with crucial support at 19,600-19,300 area, experts said.

In the recent past, Nifty failed to surpass the short-term moving average (20 exponential moving average established at 19,670) and is currently hovering in the same region. A decisive close above 19,670 could help the index extend its rebound to the 19,800-20,000 range, according to Ajit Mishra, vice president of technical research at Religare Broking.

On the downside, he believes the region between 19,200 and 19,450 would continue to provide support in the event of a reversal.

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F&O Cues, India VIX

The Options data also indicated that the Nifty may encounter significant resistance between 19,900 and 20,000, with crucial support between 19,600 and 19,500.

According to weekly options data, the highest Call open interest (OI) was at the 20,000 strike, followed by the 20,500 and 19,900 strikes, with the most significant Call writing at the 20,500 strike, followed by the 20,000 and 19,900 strikes.

On the Put side, the highest open interest was recorded at the 19,500 strike, followed by the 19,600 and 19,000 strikes, with writing occurring at the 19,600 strike, followed by the 19,000 and 19,500 strikes.

During the previous week, volatility moderated substantially, providing solace to the bulls. The India VIX, which measures the expected volatility of the Nifty50 over the next thirty days, decreased by 10% from 11.45 to 10.3, the lowest level since July.

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IPO

The primary market appears to be experiencing a deceleration in activity, as only one initial public offering (IPO) is scheduled to commence subscriptions the following week. In the SME segment, Arvind and Company Shipping Agency of Gujarat will open its Rs 14.74-crore public offering from October 12-16 at an offer price of Rs 45 per share, whereas Committed Cargo Care will conclude its IPO on October 10.

In the mainboard segment, Plaza Wires, a wires manufacturing company based in Delhi, is scheduled to commence trading on the bourses on October 13. Arabian Petroleum, a manufacturer of lubricants, and E Factor Experiences, an event management firm, are both expected to list their shares on the NSE Emerge on October 9, in accordance with the IPO schedule.

On October 10, among others, City Crops Agro and Goyal Salt & Kontor Space will make their debuts on the BSE SME. On October 11, Oneclick Logistics India and Canarys Automations are scheduled to list their shares on the NSE Emerge.

Additionally, on October 12, Vivaa Tradecom is scheduled to commence trading on the BSE SME. On the same day, Vishnusurya Projects and Infra, Sharp Chucks and Machines, and Plada Infotech Services will all make their debuts on the NSE Emerge. Moreover, as of October 13, Karnika Industries will be listed on the NSE Emerge.

According to the IPO schedule, Sunita Tools shares are expected to be listed on the BSE SME on October 9; however, no circular from the exchange has been issued as of yet.

Also read :- RBI Policy | Higher for longer remains relevant not only for the world but also for India, says Indranil Pan

Corporate Action

Here are key corporate actions taking place next week:

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