NEW DELHI: The week gone by induced further pessimism in the market, as the benchmark indices saw deep cuts amid concerns over financial health and liquidity crisis in the NBFC sector, rising oil prices and a fast weakening rupee.
The BSE Sensex dropped 417.95 points, or 1.20 per cent, for the week to settle at 34,315 on Friday, while the Nifty50 tanked 168.95 points, or 1.61 per cent, to end at 10,303. Fridays selloff wiped off Rs 1.60 lakh crore of equity investors wealth.
Even some solid earnings numbers from blue chip firms like Reliance Industries and Infosys failed to lift the mood. Sustained capital outflow has created a gloomy atmosphere, dealing a body blow to risk-appetite. Every rise in market is meeting with a wave of profit-booking. Overseas investors have pulled out roughly over Rs 20,000 crore from the domestic markets so far in October.
Going into a new week, things do not look any better. Going by analyst observations, here is a list of factors that will influence market movement next week.
Liquidity and NBFC issues
A perceived liquidity crisis in the non-banking financial companies (NBFCs) has made investors wary despite a slew of measures from the government and RBI to address the issue. After the IL&FS crisis, even the slightest indication of problem in an NBFC has led to a selloff. “RBI is trying to inject liquidity, but confidence needs to be restored in the system to ensure that it continues to function,” Sudip Bandyopadhyay, group chairman, Inditrade Capital, said in an interview with ET Now. “If the liquidity crunch is allowed to continue unabated, it may lead to solvency issues and that will be disastrous. We will have to see how that gets handled over the next 10-15 days,” he said. The efficacy of RBIs decision to relax liquidity norms and allow more bank lending to NBFCs will be assessed in the coming days.
October series futures and options will expire on Thursday and rollover of positions will dominate proceedings through the week. “Friday's data showed maximum Put open interest was at 10,000 followed by 10,200, while maximum Call OI was at 11,000 followed by 10,600,” said Chandan Taparia of Motilal Oswal Securities. “There was meaningful Call writing at 10,400 followed by 10,600, while Put writing was seen at 10,200 followed by 10,100. The option band signified a trading band between 10,200 and 10,500 levels. On Friday, Nifty futures closed in the negative at 10,314 with a loss of 1.24 per cent,” he said. F&O rollovers may increase volatility in the market.
Rupee remains a big worry
The rupee settled 29 paise higher at 73.32 against the dollar on Friday, amid selling of the US currency by exporters and foreign fund inflows. The domestic unit has been on a bumpy track of late owing to unstable crude oil prices, a stronger dollar, capital outflow and rising bond yields in the US. The rupee will remain a key factor to watch in the coming days.
The course of crude oil
Crude oil prices rose in international markets on Friday. Brent crude futures rose 49 cents to settle at $79.78 a barrel amid a surge in demand in China. The market is now focussing on US sanctions on Iran, which will come into force on November 4. Crude has a direct impact on the rupees health and ultimately it influences the mood of the market, as higher crude oil prices raises worries of a spike in current account deficit and fiscal deficit, distorting countrys macroeconomic mathematics. As per RBI estimates, every $10 a barrel rise in oil price reduces countrys GDP growth by around 0.15 per cent.
Key Q2 earnings ahead
The earnings season is on in full swing now. ITC, Asian Paints, Adani Ports, Ambuja Cements, Kotak Mahindra Bank, YES Bank, Maruti Suzuki, Bharti Airtel, Bharti Infratel, Wipro, HCL Tech, Bajaj Auto, Bajaj Finance and Bajaj Finserv are among the heavyweights that will release their September quarter numbers during the week. The earnings numbers have been mixed so far. Any positive surprise should prove a booster dose for the market.
ECBs rate decision
The European Central Bank (ECB) will announce its interest rate decision on Thursday amid chaos around Brexit. While no change in monetary policy is expected as of now, the ECB will have to calculate the risk that Brexit poses to eurozone economy. “Brexit is the big elephant in the room for the euro areas economy. A lot of people are trying to guess the nitty-gritty of interest rate increases that are still about a year out, but are ignoring one of the regions key economic risks,” Karsten Junius, chief economist at Bank J Safra Sarasin in Zurich, told Bloomberg.
The Bank of Japans core CPI will be out on Tuesday. The US new home sales report for September will be out on Wednesday. Besides, markets will closely watch third quarter GDP growth numbers of the US on Friday. On the same day, data on USs real consumer spending will also be released. Italian budget will also be in focus this week.
Technical outlook weak
On the technical charts, the bears appear on the driver's seat. “As per the weekly timeframe chart, Nifty has formed a negative candle with a long upper shadow, which indicates a sharp negative reversal from the recent highs. The weekly RSI is also sending out negative signals,” said Nagaraj Shetti, Technical Research Analyst at HDFC Securities. Technical indicators still show more scope of downside, though in between a short bounce cannot be ruled out. The support for Sensex/Nifty during the week is seen at 33,350/10,000 and resistance at 35,100/10,550. Bank Nifty would have a range of 24,150-25,860, said Vaishali Parekh, senior technical analyst at Prabhudas Lilladher.