Earnings, crude, FOMC meet among 10 key things to keep traders busy this week

FOMC interest rate decision and US mid-term elections would be key things to watch out for this week

The market clocked stellar returns last week with the Nifty surging 5 percent despite mixed Q2 earnings, driven by stability in bond yields, fall in crude oil prices and a strengthening rupee. A likely US waiver to India from Iran sanctions and softening trade tensions after renewed talks between world’s largest economies — US and China — boosted sentiment.

All sectoral indices closed strongly in the green, with auto, banking, infrastructure, IT, metal, pharmaceutical and realty gaining between 4 percent and 8 percent.

The broader markets outperformed frontliners with the BSE Midcap and Smallcap indices climbing over 7 percent and 6 percent last week, respectively.

India VIX fell 5 percent to 18.23 on November 2, which indicates positive sentiment in the market. However, experts feel a strong short term reversal is only possible when it moves down to 16 levels.

The market will remain closed on Thursday on account of Balipratipada and will open for an hour-long trade on Wednesday evening for Laxmi Pujan.

Experts are still cautious despite the rally. After the market sharply corrected from September, they see the rally extending in the truncated week, but feel that could be short lived. Movement in crude oil prices and dollar-rupee, earnings and US-China trade talks would be closely watched going forward.

“A series of events has led to this recovery, but it’s early to call it a reversal. We have seen a decline in crude oil prices and strengthening of the rupee earlier too but only for a short duration,” Jayant Manglik, President, Religare Broking told Moneycontrol. He advises investors to maintain a positive yet cautious approach and focus more on the trade management aspects.

Vinod Nair, Head of Research at Geojit Financial Services, said momentum is building-up in mid- and smallcaps due to moderation in valuation. He sees the Nifty rally extending to 10,600-10,700 levels, supported by a fall in crude prices, appreciation in the rupee and ease in trade tensions.

Here are 10 key things that will keep traders busy in this Diwali week:

Earnings

The July-September quarter earnings season so far has been mixed. Banking sector is showing signs of a reversal in non-performing assets (NPA) on falling slippages. Majority of top companies, barring state-run entities, have already announced their results.

This week more than 400 companies will declare their quarterly earnings. These include key names like State Bank of India, Cipla, Power Grid Corporation of India, Bosch, Titan Company, GAIL India, PNB Housing Finance, Exide Industries and Amara Raja Batteries.

SBI

The country’s largest lender will announce its quarterly earnings on November 5. It is expected to turn profitable sequentially, but profit may be sharply lower YoY on lower operating and other income. Provisions and slippages may decline.

Kotak Securities sees net interest income growing in double-digits, with stable loan growth. “We expect loan growth around 10 percent YoY and net interest margin to decline by around 2.8 percent. Slippages may decline to below 3 percent as recognition is complete, while gross NPLs could decline with further resolution in smaller NCLT cases/write-offs.

Crude oil

Crude oil prices played a key role in last week’s rally as Brent crude futures, the international benchmark for oil prices, fell more than 6 percent to around $73 a barrel, pressured by higher output from major oil producers.

Oversupply concerns spooked oil markets, especially after the US said it would temporarily spare eight countries from Iran-related sanctions, which will be effective from November 5.

Record output from major oil producers – US, Russia and Saudi Arabia – ahead of the Iran sanctions have underpinned speculative long positions.

Any fall in international oil prices is a positive for India, which imports around 85 percent of its requirement. It also favourable for companies which use it as a raw material like oil retailers, paint, tyre, aviation, etc, but bad for oil exploration firms.

Dollar-rupee movement

Other key factor to watch out for would be the Indian rupee which on November 2 clocked its biggest single-day gain of 101 paise in over five years, amid improvement in the macro environment, taking the total weekly gain to 103 paise against the dollar.

Falling crude oil prices slightly eased concerns over a widening current account deficit and reports of a likely waiver to India from US sanctions on Iranian oil imports boosted the currency.

A bullish trend in the equity market and fresh foreign fund inflows provided support to the rupee, which witnessed a massive 150 paise rise on November 1 and 2. The currency has gained 195 paise from its all-time closing low of 74.39 a dollar hit on October 9.

Trade talks

Renewed trade talks between US and China was one of the drivers for last week’s market rally. If both nations successfully arrive at a resolution, then it may boost equity market sentiment across the globe. Media reports indicated on November 2 that US President Donald Trump had asked officials to prepare a draft for a US-China trade deal.

Dhanteras

Dhanteras, the auspicious day for Hindus, will kick off the five-day Diwali festival on November 5. Hindus celebrated this auspicious day by buying gold. In addition to physical gold, people also buy gold Exchange Traded Funds (ETFs), which is backed by physical gold of very high purity. Experts recommend gold as an excellent investment option from a hedging perspective, given global uncertainties.

Technical outlook

The Nifty decisively surpassed its critical hurdle of 10,450 and closed the week a tad above 10,550. However, it is still trading below its 200-day Exponential Moving Average (EVA) placed around 10,700 levels on the daily chart, which may act as critical resistance in coming sessions.

The index rallied 523 points, or 5.21 percent, to close at 10,553 last week and formed a mammoth bullish body candle on the weekly charts. Ending the week with a huge bullish body candle suggests that Nifty may again see strong buying on dips around critical supports, experts said.

“The Nifty could extend its gains towards 10,700–10,800 levels. But in the next falling leg, it should not close below 10,230 levels. The index has completed one rising leg and is set for the next minor falling leg to 10,450–10,350 levels,” Gajendra Prabu, Technical Research Analyst at HDFC Securities, said.

He advises using the dip as buying opportunity with a strict stop-loss of 10,230. “If the index closes below this crucial level, then the market may crash.”

Jaydeb Dey of Stewart & Mackertich sees the Nifty trading between 10,350 and 10,850 levels this week.

Corporate action

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Macro data

Nikkei Services PMI data for October will be released on November 5, which was eased to a four-month low of 50.9 in September (from 51.5 in August) on dwindling demand.

India’s foreign exchange reserves slumped $1.444 billion to $392.078 billion in the week to October 26 due to a fall in foreign currency assets, according to RBI data.

Global cues, FOMC meeting

An interest rate decision by the Federal Open Markets Committee and US mid-term elections would be key things to watch out for this week.

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