In the coming week, inflation data will be critical as it will make a base for RBI to decide on further rate cuts. If the inflation continues to remain high, RBI will not have much wiggle room to ease its policy further.
Movements in the US markets and progress in talks between India and China over border tensions will also be key as any negative news on both fronts will not be taken well by investors on Dalal Street.
“Among the major triggers, participants will first react to the IIP numbers next week, followed by the CPI and WPI inflation data in the coming sessions. Besides, further updates on disengagement between India and China at LAC would also remain on their radar. Meanwhile, markets will continue to take cues from the global indices and upcoming FOMC meet,” said Ajit Mishra, VP – Research, Religare Broking.
Here are key factors that may guide markets this week:
Border tensions: China told Indian interlocutors in Moscow last week that it is willing to discuss reduction of forces at the Ladakh frontier. However, it is believed the Chinese took the line that this process should be undertaken simultaneously by both sides, wherein lies the catch.
Progress or lack of it will be closely tracked by the market participants.
Global cues: Indian markets have been closely tracking movements in the US markets. On Friday, the Dow Jones Industrial Average rose 0.48%, to 27,665.64 while the S&P 500 closed flat. The tech heavy Nasdaq Composite dropped 0.6%.
The market will keep an eye on developments on the policy front as well as there has been considerable delay in stimulus from lawmakers.
Inflation data: India will release its inflation data for August on Monday which will give a clue if the RBI will take a rate cut in the next policy meet. As per projections, the inflation is likely to spike, not leaving enough legroom for the central bank.
Rupee up for consolidation: Indian rupee is one of the biggest gainers among emerging markets currencies in recent months and now it is likely to consolidate.
“We are expecting the rupee to witness some consolidation but trade with an upside bias in the near term. Although the selloff in US equities has been a dampener, we expect the dollar index to be subdued, which coupled with significant portfolio inflows should keep the rupee supported. However, any escalation in Indo-China tensions could add to the volatility and 72.80 on the rupee marks a near-term high for the pair,” said Sugandha Sachdeva VP-Metals, Energy & Currency Research, Religare Broking.
FII flow: After four months of exuberance during which foreign institutional investors poured RS 91,000 in Indian equities, they have finally turned sellers. The foreign fund managers have withdrawn Rs 3,510 crore so far in September. Markets could be suppressed if they continue to take out money.
Banks to be under pressure: The issue regarding ‘charging compound interest and credit rating/downgrading’ for the moratorium period continues to be an overhang for the market. The Supreme Court passed an interim direction holding that the accounts not declared as NPA as on August 31, 2020 shall not be declared as NPAs till further orders.
“A delay in this matter has surely provided short-term relief to the borrowers, but the pain in the overall economy is simply delayed and cannot be ignored. Banks are likely to remain under pressure until a conclusive judgement is announced on the issue,” said Nirali Shah, Senior Research Analyst, Samco Securities.
Listing of Happiest Minds: The next week will see allotment of Happiest Minds shares among those who subscribed to the initial offer. The scrip will also debut on the bourses during the week. However, there is no clarity on dates yet.
Technical outlook: The Indian market has followed the Asian market trend. It has been cautious and the main reason for being cautious is the US elections which are going to be held in November 2020, said analysts.
“The US market has been volatile for the past few days, and buying over the weekend is bound to lead to a crisis. If the Nifty breaks the 11,500 level, it is likely to move to the 11,700-11,800 level. The 11,300-level will serve as a crucial support for the market,” said Shrikant Chouhan, EVP- Equity Technical Research at Kotak Securities.