Market Week Ahead:key things that will keep traders busy

The market is likely to start the coming week on a positive note, tracking strong closing in US markets on Friday after better-than-expected jobs data but for the rest of the week, a bit of weakness amid consolidation is expected to continue.

   

The market continued its correction in the passing week despite recovery in global peers, shedding more than 2 percent and taking total losses to over 8 percent from its record high touched on January 29, 2018. Benchmark indices closed at fresh 2018 closing lows.

Continued weakness in the banking space after the Rs 12,700-crore PNB fraud case, and worries over trade war arising from the US announcement of import duties on steel and aluminium hit market sentiment.

Generally, when the market sharply moves either way, it becomes difficult to predict the top or bottom. Hence, in this falling market, people are finding it difficult to take long positions and are waiting for the bottom to be formed.

The market trend also indicated that traders as well as investors are using two strategies - "sell on rally" and "add exposure to quality stocks".

The current gradual correction from all-time high indicated the overall weakness in the market is not yet over due to ongoing asset quality issues in banking, the major driver of the economy, experts feel.

The market is likely to start the coming week on a positive note, tracking strong closing in US markets on Friday after better-than-expected jobs data but for the rest of the week, a bit of weakness amid consolidation is expected to continue, experts said, adding a major sell-off is unlikely unless there are any further detrimental developments in the banking fraud case or globally.

"The market breadth has remained weak throughout the week. Despite a recovery of almost 100 points on Thursday, a negative breadth clearly suggested prevailing scepticism in the market. Thus, selling pressure may continue at higher levels in the coming sessions," Amit Gupta of ICICIdirect said.

He further said, "As fresh shorts are not evident in data, any change of bias in the Nifty may be seen only if fresh long additions were observed or Call writers start unwinding their positions. At the same time, sudden depreciation in rupee also weighed on equities as it moved above 65 once again."

In the coming week, the market will closely watch the macro data (January IIP and February CPI inflation). The flow in secondary market could be impacted due to active primary market as three IPOs nearly worth Rs 10,000 crore will open for subscription.

"The macro data will give a sense of the economic recovery and trend in inflation, respectively. In this, inflation would be something that would be critical as its further hardening could trigger fears of rate hikes," Sanjeev Zarbade, Vice-president-PCG Research, Kotak Securities. said.

On the global front, he said President Trump’s rhetoric on trade protectionism could weigh on markets. On the other hand, any move by the Trump towards reconciliation with North Korea could be taken positively.

The recent fall in mid-cap stocks provides a good opportunity for investors to pick stocks. So he advises investors to select stocks with strong management quality, robust earnings growth and reasonable valuations.

Here are 10 key things to watch out for in the coming week:

Banking fraud deepening

The crisis in banking sector, the major driver of the economy, has been intensifying after the country's second largest public sector lender Punjab National Bank reported transaction fraud worth Rs 12,700 crore last month. PSU Bank index corrected 5.4 percent and Nifty Bank lost 2.4 percent in the week gone by.

A multi-agency probe is already underway into the PNB scam and the ministry already filed a petition against individuals, groups and their entities belonging to Nirav Modi and Mehul Choksi Groups before the Mumbai bench of the National Company Law Tribunal (NCLT).

In the latest development, the Serious Fraud Investigation Office (SFIO) is probing 107 companies and seven Limited Liability Partnerships linked to Nirav Modi and Mehul Choksi groups.

In another alleged scam, the Enforcement Directorate also filed a charge sheet against a former Andhra Bank director in an alleged Rs 5,000-crore bank fraud case involving a Gujarat-based pharma firm. A media report indicated that former deputy manager of PNB Gokulnath Shetty, who involved in the PNB-Nirav Modi-Mehul Choksi scam, had also dealt with Winsome officials and the CBI has summoned R Ravichandran, former director (operations) of that diamond trading company.

On top of the likely elevated NPA levels and higher provisions, latest banking report by global investment firm warned that state-run banks, which are typically the largest investors in sovereign securities, could lose more than Rs 20,000 crore in the January-March quarter, due to a continued spike in bond yields and as they held more bonds than are required by the regulator.

The Government’s tough call to inspect all books of PSU Banks where borrowed amounts were above Rs 50 crore may keep some investors un-nerved on expectations of more un-toward revelation by PSU banks, the Stewart & Mackertich Wealth Management said in its report.

GST Council

The Goods and Services Tax (GST) Council approved the e-Way Bill rollout from April 1 in its 26th meeting held in New Delhi on Saturday.

Finance Minister Arun Jaitley while addressing the media after the meeting said the council was working on making the returns filing process simpler.

The current system for simplifying returns has been extended by 3 months. TDS and TCS system formalities, in which state and central government accounting systems will be linked has also been extended until June 30.

The tax bureaucracy was of the view that such a mechanism would be in place that there would be no room left for tax evasion.

Macro Data

Industrial output for the month of January and CPI inflation for February will be released on Monday after market hours, which will give a sense of the economic recovery and trend in inflation.

Overall economists expect the CPI for February at around 4.7 percent and IIP for January around 6.3-6.4 percent.

CPI in January improved to 5.07 percent whereas, index of industrial production data for December 2017 was reported at 7.1 percent.

Apart from CPI and IIP, balance of trade for February will be announced on Monday, Q4 current account deficit data on Tuesday, WPI inflation for February on Wednesday, and foreign exchange reserves data for the week ended March 9 and deposits & bank loan growth data for week ended March 2 on Friday.

IPOs

The primary market will be fully active in the coming week as around Rs 10,000 crore worth of IPOs will hit the Dalal Street.

State-owned Bharat Dynamics and Hindustan Aeronautics will open their IPOs worth Rs 960 crore and Rs 4,200 crore for subscription on Tuesday and Friday, respectively.

Bandhan Bank's Rs 4,473 crore IPO will be opened on Thursday while the Rs 77-crore public issue of Karda Construction will open on Friday.

FIIs

Foreign institutional investors were net buyers to the tune of more than Rs 1,500 crore in equities last week after around Rs 12,000 crore worth of selling in equities in February while domestic institutional investors' flow was muted as they bought only Rs 131 crore worth of shares following more than Rs 17,000 crore buying in previous month.

FIIs and DIIs flow would be closely watched in the coming week as major chunk of their investment may be shifted to primary market wherein four IPOs will be opened.

Jayesh Bhanushali, Senior Analyst at IIFL said tracking FIIs' short-term future and options positions, they have a long/short ratio of 0.9x in index futures, 1.9x in call options and 2.7x in put options, indicating a negative outlook for the March expiry.

Futures & Options

The trend in F&O indicated that the market could be in a range of 200-250 points on the Nifty in the coming week.

"Option band signifies a range bound trading range between 10,100 to 10,350 zones," Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities said.

On the options front, maximum Put open interest stood at 10000 followed by 10200 strikes while maximum Call open interest is at 10500 followed by 10400 strike. Fresh Call writing was seen at 10300 followed by 10500 strikes while Put writing was seen at 10200 followed by 10150 levels on Friday.

The index futures have added around 70 lakh shares in open positions since the beginning of the March series, consisting of mainly short positions.

"As out of the money 10400ce & 10500ce strikes have huge call writing positions, we believe every upside up to the mentioned strikes should be used to unwind long positions or create fresh short positions," Bhanushali said.

Technical Outlook

Technically, the 10,100 would be important support level for the Nifty, followed by 10,000, the most crucial level said every analyst. If that breaks, then there could be more sell-off in the market, experts feel.

"Daily chart pattern suggests, the Nifty is approaching towards 200 daily EMA placed around 10,100 levels, recent pullback from 10,140 levels may again get sold off towards lower lows. This pullback is likely to be short lived since there is 13-30 daily EMA bearish cross down on the daily chart," Stewart & Mackertich said.

"The Nifty may remain under pressure as long as it trades below dual resistance zone of 10,340. Hence, aggressive buying is certainly not advised. The broader trading range for this month is expected to be 10,540-10,000," it added.

Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan said, "The momentum indicators on the daily as well as the weekly time frame are in bearish mode. This indicates that the bears are having upper hand on the benchmark index.

Once the Nifty breaches the swing low of 10,141 it can target the psychological mark of 10,000 with potential to tumble down till 9,800, he feels.

Stocks in Focus

Here is the list of stocks that may react to the news on coming Monday:

Tata Motors said global wholesales of all its commercial vehicle & Tata Daewoo range in February stood at 46,262 vehicles, passenger vehicles at 74,990 units and JLR at 56,905 vehicles.

Enforcement Directorate has filed prosecution complaint against Anup Prakash Garg, ex- director, Andhra Bank under PMLA in Rs 5,000 crore bank fraud case involving Sterling Biotech, its directors & others.

Oriental Bank of Commerce raised 1-year marginal cost of funds based lending rate to 8.50 percent from 8.35 percent.

IDBI Bank will be in focus as a media report indicated that capital market regulator SEBI is set to buy bank's building in Mumbai for nearly Rs 1,000 crore.

Union Bank of India has direct credit exposure of about Rs 295 crore to Nirav Modi and Gitanjali Group companies, its chief executive told Reuters.

Reliance Communications promoter firm pledges shares worth Rs 300 crore.

Government said PNB incurred losses of Rs 2,808 crore due to frauds in 2016-17.

Bharti Airtel planned to raise up to Rs 3,000 crore for refinancing debt and meeting spectrum liabilities

Global Cues

Indian markets may the start the coming week on a positive note, tracking strong close on Wall Street on Friday. The Dow Jones Industrial Average rallied 440 points after February jobs growth far exceeded expectations.

The US economy added 3,13,000 jobs in February, according to the Bureau of Labor Statistics. Economists polled by Reuters expected a gain of 2,00,000.

On the data front, US' CPI for the month of February will be released on Tuesday, continuing & initial jobless claims on Thursday, and industrial production data for February on Friday.

Japan will announce its data for machine tool orders on Monday, PPI for February on Tuesday, core machinery orders for January & monetary policy meeting minutes on Wednesday, and industrial production for January on Friday.

Europe's industrial production data for January will be announced on Wednesday and CPI for February month on Friday.

China's industrial production data for February will be released on Wednesday.

MORE WILL UPDATE SOON!!