Market Week Ahead: After 1,112-pt Sensex correction, keep an eye on these 10 factors

The market snapped a five-week winning streak and fell sharply by more than 1,100 points on the Sensex, weighed by geopolitical tensions surrounding around North Korea and disappointing earnings.

Other news like the indication from mid-term Economic Survey of likely failure in meeting the upper end of FY18 economic growth forecast of 6.5-7.5 percent, Doklam standoff between India & China, and SEBI’s order to ban trading in 331 ‘shell companies’ also hit market sentiment. However, the Securities Appellate Tribunal (SAT) lifted trading curbs on 8 firms but asked to continue probe in all 331 firms.

The 50-share NSE Nifty plunged 3.5 percent or 355.60 points from 10,066.40 level to 9,710.80 in the passing week, which was the biggest weekly correction in current calendar year. The Nifty Midcap lost 5.5 percent, though it recovered in the last session of the week and lot of beaten down good quality stocks rebounded.

Actually, the current correction was long awaited by investors as well as traders because the Nifty saw a one-way rally since the start of the year 2017 and surged nearly 24 percent to hit the five-digit mark – 10,137.85 (record high).

According to experts, it was a meaningful correction last week and that was on expected lines after a one-way northward journey.

They said no can predict top or bottom for the market but looking at disappointing numbers in the end of Q1FY18 earnings season and geopolitical tensions, the fall is likely to continue in near-to-short term.

The recovery of 100-120-point on the Nifty could be possible next week but that is unsustainable amid the current weak market conditions, experts feel. According to them, most of domestic factors already priced in, so only global factors (which could be anything) that can bring bulls back at Dalal Street.

Experts said people should not panic in such a situation and should be ready to grab quality stocks in a falling market as it is a healthy correction in structural bull run.

Further high leverage closure may be seen in the coming truncated week and stock-specific profit-booking could also be seen on intermediate pullbacks, Amit Gupta of ICICIdirect said.

According to him, the next highest Put base is seen at 9,500 strikes which may be the eventual target if Nifty doesn’t recover above 9,830 (the immediate important resistance).

He said US-North Korea standoff needs to recede for the risk on sentiment to remerge and FIIs are likely to wait for the time being.

Hiren Ved, Director & CIO, Alchemy Capital Management said geopolitical tensions surrounding North Korea are not expected to escalate further; it will be a short-term impact on markets.

“The fundamentals of the Indian economy are continuously improving, which gives greater confidence in the medium- to long-term potential of Indian equities,” Sanjeev Zarbade, Vice President, PCG Research, Kotak Securities said.

Equity markets will remain shut on Tuesday for Independence Day holiday.

In opening trade on Monday, the market will react to India’s June factory data and US’ July CPI inflation, which was announced after Friday market hours. Industrial output further slowed down in June, slipping into a negative zone of (-) 0.1 percent from 1.7 percent in May, mainly due to subdued mining and manufacturing output, coupled with continued cutting of inventories before implementation of the Goods and Services Tax (GST) from July.

The rising US CPI inflation in July to 0.1 percent MoM indicated that Federal Reserve may not go aggressive for further rate hikes.

Following top 10 factors need to be considered while trading next week:-

Earnings

June quarter earnings season is expected to end next week. Most of big companies (barring Coal India, Tata Power and Grasim Industries) already have announced their earnings, so the remaining earnings are only from some midcap, smallcap and penny ones.

About 600 compaines including Coal India, Tata Power, Grasim Industries, Bajaj Hindusthan, NBCC, MTNL, Dredging Corporation, DB Realty, Future Consumer, Infibeam Incorporation, JK Tyre, Jindal Drilling, Jain Irrigation, IVRCL, MEP Infra, Prestige Estates, Sadbhav Engineering, Rolta, Ruchi Soya and Suven Life will announce their earnings on Monday. It is expected to be the last heavy earnings day.

For the rest of truncated week, about 40 small companies will release their earnings.

Geopolitical Tensions

Geopolitical tensions, which intensified in the passing week due to ongoing threats between the United States and North Korea, would be a key factor to watch out for next week.

The crisis started with the announcement by North Korea that it has the capability to fit smaller nuclear weapons on missiles. It further warned that it is considering targeting the US base of Guam with a missile. The US also responded with dire warnings.

On Friday, the US President Donald Trump wrote in his tweet, “Military solutions are now fully in place, locked and loaded, should North Korea act unwisely. Hopefully, (North Korean leader) Kim Jong Un will find another path!”

In other tweet, he said North Korea’s leader would “regret” making any “overt” threat, keeping up the pressure after a string of combative warnings.

Macro Data

Consumer price index and wholesale price index inflation for July will be announced on August 14. Retail inflation in June hit a record low of 1.54 percent and WPI inflation dropped to 11-month low at 0.9 percent.

Stocks in Focus

On coming Monday, Sun Pharma, Bank of Baroda, HDIL, SAIL, Gujarat State Petronet, Sun TV Network, REC, Corporation Bank, Suzlon Energy, CESC, BPCL, Dhanlaxmi Bank, Cox & Kings, Gitanjali Gems and Praj Industries will react to their June quarter earnings announced on Friday after market hours.

Stocks like DLF, Adani Ports, United Bank, Ansal Properties, Godfrey Phillip, Mercator, Parsvnath Developers, Vivimed Labs etc will also react to their earnings that will be announced on August 12. More than 200 companies will release quarterly numbers on Saturday.

Parsvnath Developers, SQS India BFSI, Pincon Spirit, Signet Industries, Kavit Industries and Kkalpana Industries are expected to fall on Monday as they will resume trading for first time after market regulator Sebi announced trading restrictions on 331 ‘shell companies’ on August 7. The Securities Appellate Tribunal has stayed Sebi’s trading ban order on August 11.

Cadila Healthcare may open higher after Zydus received approval from US Food & Drug Administration for Mesalamine Suppositories (which are used to treat mild to moderate active ulcerative proctitis (inflammation of the rectum)).

Shell Companies

On August 7, the Sebi released the list of 331 companies identified by Ministry of Corporate Affairs. These companies are suspected to be shell companies and hence the trading in these stocks stopped since then.

However, the Securities Appellate Tribunal has stayed Sebi’s trading ban order on 8 companies in later part of the week but asked the regulator to continue probe on all 331 companies.

Meanwhile, investigation agencies have identified more than 13,000 shell companies post demonetisation, according to two sources who spoke to Moneycontrol on condition of anonymity. The Income Tax Department, Enforcement Directorate, the Central Bureau of Investigation and the Serious Fraud of Investigation Office had sent their individual lists to the Financial Intelligence Unit (FIU) which had compiled them. The source added that this list was made before SEBI’s ban this Monday halting trading in 331 ‘shell companies’.

Technical Outlook

Analysts expect more downside to the market, though there could be a minor pullback. They expect the Nifty at around 9,500 level soon due to global factors.

“The overall negative chart pattern with other negative technical aspects of larger and smaller timeframe is now opening up the downside target for Nifty by around 9000 levels, which could be achieved in the next couple of months,” Nagaraj Shetti of HDFC securities said.

According to him, there is a possibility of a minor pullback rally attempt by next week (maximum up to 9820-9850 levels), but eventually this support is likely to be broken on the downside.

Post decline, rebound on the cards; but Nifty must sustain above 9,770 to confirm exhaustion of selling pressure, Amar Ambani of IIFL Private Wealth said.

Flow of Money

FIIs net bought more than Rs 1,600 crore worth of shares in India in the passing week while domestic institutional investors’ purchased nearly Rs 4,500 crore worth of shares despite negative market sentiment.

In the F&O segment, flows were negative. In the index future segment, there was the short addition of USD 87 million. They also bought index options worth over USD 920 million to hedge cash positions.

With quarter earnings season drawing to a close, liquidity flows would drive market sentiments from next week, Ambani feels.

F&O

Maximum Put OI of 44.83 lakh contracts was seen at a strike price 9,500, which will act as a crucial base for the index in August series, followed by 9,800, which now holds 41.4 lakh contracts and 9,700, which has now accumulated 34.06 lakh contracts in open interest.

Maximum Call open interest (OI) of 54.76 lakh contracts stands at strike price 10,000, which will act as a crucial resistance level for the index in the August series, followed by 10,100, which now holds 50.21 lakh contracts in open interest, and 10,200, which has accumulated 47.11 lakh contracts in OI.

Corporate Action

These stocks will trade ex-dividend from August 14 – Motherson Sumi, PPAP Automotive, MCX, Sona Koyo, Weizmann Forex, Agri-Tech (India), Chennai Petroleum, CL Educate, Pilani Investment, Flexituff International, Weizmann, L&T Infotech, India Nippon, City Union Bank, Liberty Shoes, Navkar Corporation, L&T Technology, Nath Bio-Genes, Pricol, Rane Brake, Rane (Madras), ADF Foods, Bharat Electronics, Standard Industries, Techindia Nirman, TVS Srichakra and Hindustan Copper.

These stocks will go ex-dividend from August 16 – Majesco, West Coast, Rajshree Sugars, Ashiana Housing, IRB Infra, Cerebra Integrated, Maithan Alloys, Natco Pharma, Elgi Rubber, GNFC, hampur Sugar, Jubilant Life, Jubilant Industries, Peninsula Land, Keynote Corporate, SRF, Winsome Yarns, Sarda Energy, Shriram EPC, Varun Beverages, Vinyl Chemicals and TIL.

Ex-dividend date for these stocks is August 18 – Kirloskar Industries, IOC, Suryalakshmi Cotton, KPR Mill, IL&FS Engineering, Jubilant Foodworks, L&T Finance, Puravankara, Siyaram Silk, Ansal Housing, IL&FS Transportation, InterGlobe Aviation and Kaveri Seed.

Global Cues

Apart from geopolitical tensions, on the economic data front, Japan’s Q2 GDP, China’s July industrial output and Europe’s factory data will release on Monday while Japan’s industrial production data is scheduled to be released on Tuesday.
On Wednesday, Europe will release its Q2 GDP data and FOMC’s July meeting minutes will be announced. Europe’s core CPI data for July is set to be released on Thursday.