10 Key factors that will influence markets’ sentiment in the week ahead. Know everything

10 key factors- The Sensex and Nifty 50 hit new highs last week, thanks to a drop in crude oil, strong GDP data, and the Fed’s dovish stance. The Sensex and Nifty 50, on the other hand, ended an eight-day rally on Friday as main investors cashed in their gains.

A variety of factors will influence stock market sentiment this week, with the RBI’s policy decisions taking centre stage. Macroeconomic data and foreign fund flows will have an impact on performance. The Sensex and Nifty 50 reached new highs last week, thanks to a drop in the dollar, strong GDP data, and the Fed’s dovish stance. The Sensex and Nifty 50, on the other hand, ended an eight-day rally on Friday as investors cashed in their gains. The very week ending December 2nd belonged to the midcap and smallcapped baskets, as both indices gained 2%, with top picks being technology and financial stocks.

The Sensex reached a new lifetime high of 63,583.07 on December 1st, while the Nifty 50 reached a new historical high of 18,871.95 before correcting the following day. Between November 22nd and December 1st, both benchmarks increased by at least 4%.

Markets, however, retreated from their bullish stance on Friday. The Sensex closed the day down 415.69 points (0.66%) at 62,868.50. To 18,696.10, the Nifty 50 index fell 116.40 points, or 116.40%. The downside was caused by widespread profit booking in large caps. Automobile stocks were the worst performers, but so were those in information technology, banking, and consumer durables. Metal stocks performed better than their peers.

Markets will be focused on factors such as major countries’ economic data, the RBI’s monetary policy, foreign funds flow, and corporate actions in the coming week, among others. This week, let’s take a look at the top ten factors influencing Indian markets.

The 10 Key Factors Are-

1. The Reserve Bank of India’s policy:

The Federal Reserve’s December policy announcement will be the focus of market participants this week. While a 35 basis point increase in the next policy is expected, a 50 basis point increase for the fourth time in a row is not out of the question.

The RBI has also raised the repo rate by a main whopping 190 basis points since May 2022, bringing the key rate to 5.9% today. For the very third time in a row, the main interest rate was raised by 50 basis points. Long-term high inflation drove the aggressive stance. In contrast, inflation fell below 7% in October, raising hopes for a slower pace of main rate hikes in the near future.

According to a report by Reliance Securities, “The RBI is expected to opt for a slower pace of hikes at its upcoming meeting. In response to high inflation that has consistently breached the upper end of the RBI’s tolerance band, the RBI has already raised the repo rate by 1.9% in more than four consecutive actions since May of this year. After reaching a recent high, retail inflation in India may be easing. We anticipate that the market will remain volatile in the coming weeks.”

On the global front, the brokerage anticipates that the Federal Reserve will also continue to raise interest rates and keep them at higher levels until inflation is under control and at 2%.

2. The Nifty and the Bank Nifty:

According to Sumit Pokharna, Vice President – Fundamental Research at main Kotak Securities, “Index valuation, we believe, should be balanced against the likelihood of relative earnings growth. Nifty is trading at a PE of 19.8x on FY24E earnings and 17.1x on FY25E earnings, with Nifty earnings expected to grow by 16.3% and 15.5% in FY24E and FY25E, respectively.”

Since the pandemic, the Nifty 50 has been trading at one of its least volatile levels. The benchmark reached a new historical high of 18,871.95 on December 1st before correcting the following day. The Sensex and Nifty 50 both gained nearly 4% between November 22 and December 1. During these days, they extended record-high gains.

In the future, ICICI Direct stated, “We keep our structurally positive outlook and anticipate the index gradually rising toward 19400 in the coming weeks, led by midcaps. At 18300, there is now strong support. Long positions can be created using dips.”

Meanwhile, according to Rupak De, Senior Technical Analyst at LKP Securities, “Short-term sentiment will likely remain sideways, with a critical range of 18,500-18,800. A decisive breakout from either band could result in a significant directional shift in the market.”

The Bank Nifty’s daily RSI has entered a bearish crossover, according to Rupak De. The trend is also likely to remain sideways to negative in the short term. Help is available at 42,900/42,700. The level of resistance is 43,200/43,500.

3. Economic information:

India, the United States, the current United Kingdom, and Europe will release their November services PMI data on December 5. In addition, on Monday, the Monetary Policy Committee (MPC) will meet to discuss December policy. On Monday, the US will also release its October factory orders and November non-manufacturing PMI.

Germany will release its factory orders for October on December 6, while the UK will release its November construction PMI. The RBI will announce its repo rate policy decision on December 7, and the United States will release third-quarter nonfarm productivity data on the same day. The German Industrial Production figure for October and Europe’s Q3 GDP will be released on Wednesday.

On December 8, the United States will release its initial jobless claims. On the other hand, the United States will release its November Producer Price Index and the Michigan Consumer Sentiment Index on December 9.

4. Prices of crude oil:

Oil prices will be closely monitored after OPEC+ decides on Sunday to maintain their current policy. Under current policy, OPEC+, a group of 23 oil-producing nations, planned to reduce oil production by 2 million barrels per day, or moreover, about 2% of global demand, from November to the end of 2023. The OPEC+ decision comes just two days after the Group of Seven (G7) countries and Australia agreed to cap Russian oil prices at $60 per barrel.

Last week, crude oil prices rose on speculation that OPEC+ would reduce output even further. However, because OPEC+ has decided to keep their current policy in place, oil prices may fall this week.

ICICI Direct predicts that Nymex crude oil prices will rise to $88.00 this week, with the downside providing a buying opportunity.

5. Rupee:

Last week, the Indian rupee rose as the dollar lost its 105 support levels. After US Federal Reserve Chair Jerome Powell hinted at a dovish stance in future policy, the dollar fell to its lowest level since July. Powell’s remarks raised hopes that the Fed will slow the pace of main rate hikes at its next meeting. Furthermore, FII inflows and increased risk appetite in global markets aided the Indian rupee’s strength.

The rupee will likely return to 80.50 levels in the coming week, according to ICICI Direct, due to dollar weakness and a rise in risk appetite in global markets.

According to the stock brokerage’s report, “The dollar has broken through its major support level of 105 and is heading for 104 on expectations that the Fed will slow its rate hike pace and raise interest rates by 50 basis points or less at its next meeting. The Federal Reserve Bank of the United States will also be less aggressive.

Rate increases are likely in the coming meetings, as the full effects of those increases take time to spread throughout the economy.”

6. Foreign capital inflows:

In the first two days of December, foreign portfolio investors (FPIs) increased their holdings of Indian equities by Rs 7,437 crore. FPIs invested 36,239 crore in equities in November, the second-highest monthly inflow in 2022 after 51,204 crore in August.

Meanwhile, in December, FIIs invested a total of 1,351.17 crore. FIIs invested approximately Rs 22,546.34 crore in equities in the previous month.

The movement of the dollar index, according to Dr. V K Vijayakumar, Chief Investment Strategist at main Geojit Financial Services, is the most important factor determining FPI strategy. He continued, “They sell when the dollar index rises and is expected to rise further. When the dollar index falls and is expected to fall further, they buy. India will receive its fair share of FPI funds in the future. The high valuation in India, on the other hand, will be a deterrent.”

7. Business ventures:

Four stocks will go ex-dividend this week, and one will go ex-bonus.

On December 5, Panchsheel Organics will pay an interim dividend of 0.8 cents per equity share for the main fiscal year ending March 31, 2023. The record date coincides with the ex-dividend date because Panchsheel stock has a settlement type of ‘T+1.’

Hinduja Global Solutions’ dividend will be declared on December 7, one day before the record date on December 8. Furthermore, for fiscal FY23, the company declared a second interim dividend of 5 per share (50% of the face value of 10 each).

Aptus Value Housing Finance will go ex-dividend on December 8, before the record date on December 9. For the current fiscal year, it will also pay an excellent interim dividend of $2 per equity share.

Can Fin Homes will also go ex-dividend on December 8, before the December 9 record date? The NBFC will pay a 1.50-per-share interim dividend in the fiscal year 2022-23.

The deadline for identifying eligible shareholders for a 1:1 bonus issue has been set by BLS International Services for December 10th. The company will go ex-bonus on December 8.

8. Stock exchange listings and initial public offerings (IPOs):

Dharmaj Crop Guard plans to go public on Thursday and begin distributing shares on Monday, December 5, 2022. The initial public offering was oversubscribed 35.49 times. The company’s IPO price range was 216 to 237 per equity share.

Furthermore, Uniparts India will complete the IPO process, from equity share allotment to share transfer, on December 7. The 835.61 crore IPO was subscribed to 25.32 times between November 30th and December 2nd.

9. F&O:

Last week, there was no significant activity in the F&O sector, according to ICICI Direct, because the focus was on the cash segment. Last week, FIIs increased their long bets on index futures by Rs 680 crore. Their net long position has increased to nearly 96000 contracts, the highest level since April 2019. They sold over 200 crore in stock futures and bought over 14,400 crore in index options.

ICICI Direct recommends buying Bharat Forge Dec in the 851-855 range with a target of 905 and a stop loss of 824 in the coming week’s recommendations. However, the brokerage recommends selling Eicher Motors Dec futures in the range of 3345-3375, with a target of 3100 and a stop loss of 3518.

10. Automobile stocks:

Monthly auto stock sales figures will be scrutinised.

Mitul Shah, Head of Research at Reliance Securities, stated, “Auto sales were mixed overall, with cities reporting strong sales but rural areas reporting a slower recovery. Furthermore, as a result of the success of new product launches and a reduction in supply constraints, sales increased during the month. Despite gains, 2Ws remained unimpressive. The industry falls by double digits in the month following the festival due to demand moderation and inventory de-stocking.”

Meanwhile, Arun Agarwal, Kotak Securities’ Deputy Vice President – Fundamental Research, stated, “Most automakers reported lower November 2022 volumes when compared to October 2022. However, the majority of automakers reported an increase in sales volume year over year (over November 2021). Domestic passenger vehicle volume is expected to be lower in November 2022 than in October 2022. In the short term, a strong order book in the passenger vehicle segment will likely support sales.”

Edited by Prakriti Arora