The domestic equity market remained under pressure last week, for the second consecutive week, tracking the sentiment-denting cues including Fed’s hawkish commentary and Russia-Ukraine tensions. The BSE Sensex plunged 1,836.95 points or 3.11 per cent to close the week at 57,200.23, and the Nifty50 declined 515.20 points or 2.92 per cent to 17,101.95, taking two-week losses to more than 6 per cent. The broader markets were also caught in a bear trap with the BSE midcap and smallcap indices falling in line with benchmarks.
IT stocks were hit the most, with Nifty IT index falling more than six per cent, followed by metal, FMCG, pharma, realty, infrastructure and financial services. However, Nifty Bank outpaced others by gaining a third of a percent amid a good set of earnings performances.
Vinod Nair, head of research at Geojit Financial Services, said, “This highly volatile week, the domestic market followed global reactions of Fed policy meeting, Russia-Ukraine tension and rising oil prices amid pre-budget jitters. Fed in its policy announcement, reaffirmed its plan on ending the bond purchase program and hinted at a possible rate hike during the March session. The volatility in global markets was further heightened on mounting geopolitical tensions in Ukraine which kept oil prices elevated on rising supply tensions.”
Here are key factors that traders need to keep an eye on:
Union Budget
All focus next week will be on the much-awaited Union Budget that will be presented by finance minister Nirmala Sitharaman on February 1. The entire nation will be expecting some major reliefs from the government to support the pandemic- battered economy and boost consumption demand. Income Tax sops and slashing fuel taxes will be the key points to be watched out.
“We believe the Union Budget would set the tone for the domestic markets amid the global sell-off. Volatility remains high during the budget week so participants should continue with a cautious stance and prefer hedged positions,” said Ajit Mishra, VP research. Religare Broking.
Global Cues
The ongoing conflict between Russia and Ukraine has kept the global equity markets volatile lately, putting pressure on oil prices due to supply worries. Russia wants the West to promise that Ukraine will not join its Nato defensive alliance.
Auto sales
The market participants will be keenly watching the sales numbers for the month of January of the auto companies, who will report their numbers in the coming week. Sales of most Indian automakers are showing signs of recovery lately, thanks to increasing demand for personal transport after the pandemic, despite the uncertainties around semiconductor chip shortage and higher input costs is weighing on the sentiments.
Quarterly earnings
It will also be an important week for earnings as we are in the second half of the December quarter earnings season. More than 500 companies will release their quarterly numbers next week including State Bank of India, BPCL, HPCL, IOC, Tata Motors, Sun Pharma, UPL, Adani Ports, Tech Mahindra, HDFC, GAIL India, ITC, Titan Company, Divis Labs, Tata Consumer Products, Shree Cement, and Tata Steel.
PMI numbers
The release of PMI data for January will be another key domestic data point that would be watched by the investors. The numbers of industrial and service output for the first month of the new year will signal how the country performed during the third wave of the pandemic.
Nifty Technical Outlook
Nifty closed negative for the week and is trading around its 100 days EMA on the daily chart. “Technically, Nifty is respecting a very strong demand zone of 16,800-16,600 where 200-DMA is currently placed at 16,640 level however 17,400-17,800 is a critical supply zone as a cluster of important moving averages while a move above 17,800 can lead to a big short-covering rally in the market for a move towards fresh all-time highs. There is a high probability that 16,800-16,600 has become the floor for the Nifty for time being and the market is ready to move higher but if Nifty slips below the 16,600 level then things can become ugly,” said Santosh Meena, head of research, Swastika Investmart Ltd.
FII Selling
Relentless selling by FIIs amid rising expectations of Fed rate hike by March to combat inflation dampened market sentiment, though domestic institutional investors (DIIs) poured in some funds. “Relentless selling by FIIs was a key talking point because they sold worth Rs 22,000 crore last week however DIIs tried to compensate 50 per cent of FIIs’ selling as they bought around Rs 11000 crore in the cash market. It will be interesting to see how FIIs will behave going forward after a period of massive selling,” said Meena.
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