Sep 2, 2018

Factors that will decide the market trend for the next week l Nifty50 l Sensex l Stock Trading India

Factors that will decide the market trend for the next week

After a week that saw equity indices Sensex and Nifty end on a subdued note, the domestic equity market has a strong booster in the form of a world-beating GDP growth print going into a new week. 
         While Sensex fell 45 points on Friday and Nifty inched up by 4 points, they still gained around 1 per cent each on a weekly basis, thanks to a rise in select heavyweights from financial, IT and pharma sectors. 

A steep plunge in the rupee, negative global cues, global trade war worries and expiry of August series F&O contracts continued to suppress investor sentiment on Dalal Street. The rupee breached the 71 level, marking the biggest monthly decline in three years. The week ahead, some of the same factors may keep the pressure, but there are also a few positions. Here are a few of them.

Strong macros promise some action 
           Macroeconomic data should be steering the equity market next week. On Friday, official data released after market hours showed India’s GDP expanded faster than expected at 8.2 per cent in June quarter compared with 5.6 per cent growth in the year-ago period and 7.7 per cent in March quarter. Fiscal deficit stood at Rs 5.40 lakh crore for April-July, which was 86.5 per cent of the Budgeted figure, compared with 92.4 per cent around this time last year. Eight core sectors -- coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity – expanded at an impressive 6.6 per cent in July against 2.9 per cent in the year-ago period. An improvement in government finances is expected to bring some optimism to the market next week. Investors will also keep an eye on the Nikkei Manufacturing PMI and Nikkei Services PMI for August, which will be released next week. 

Trade front remains tense 
The global trade front, the US is preparing to impose fresh tariffs on $200 billion worth of Chinese goods and President Donald Trump is threatening to pull the US out of the World Trade Organisation. Talks to revamp the North American Free Trade Agreement (NAFTA) are in progress for four days now and Trump has expressed his intention of moving ahead with Mexico even as talks with Canada continue. 

No respite likely for the rupee 
The rupee is on a free fall. After breaching the 71 level on Friday, the domestic currency has declined 3.3 per cent in August and nearly 10 per cent so far this year, emerging as the worst-performing currency in Asia. Higher crude oil prices and sustained demand for the US dollar have been causing the rupee to fall. Trade deficit – mostly because of a spike in oil prices – has been a major reason behind the decline in the rupee. RBI’s restrained intervention in using its reserves is also adding pressure on the currency. “The threshold limit (for the intervention) has increased from 69 a month back to around 70.6 now,” TOI reported HDFC Bank chief economist Abheek Barua saying so. Investors will keenly observe how the rupee moves next week. While a fresh fall will be bad for the sentiment of the overall market, select IT and pharma stocks will take advantage of it. 

Monsoon performance below average 
Latest data from the India Meteorological Department (IMD) showed a deficient monsoon in the country. Till August 30, overall rainfall for the country remained 6 per cent below IMD’s long-period average. Now it is the time of monsoon's retreat. “As of now, there are indications that monsoon withdrawal may begin from the extreme parts of northwest India during the second week of September, but the withdrawal cannot be declared in haste. One has to keep in mind the spatial continuity during the process,” TOI quoted an IMD official as saying. How monsoon fares in its last leg will be an important cue for market sentiment. 

Auto stocks to be in focus 
Stocks of automakers will be in focus next week following their August sale numbers. Automakers, including Maruti Suzuki, Tata Motors and Mahindra & Mahindra, released their sale numbers on Saturday. M&M reported a 14 per cent increase in total sales at 48,324 units, while Tata Motors reported a 27 per cent increase in domestic sales at 58,262 units. But, biggest carmaker Maruti Suzuki’s sales dropped 3.40 per cent. 

Nifty technical charts indecisive 
The Nifty50 on Friday settled flat after briefly rising above the 11,700 level in morning trade, suggesting indecisiveness among traders. Negative closing in last three days has raised concerns about the continuity of the uptrend, especially since the psychologically important 12,000 mark is within striking distance. While key levels remain intact, we are betting on a broadening wedge pattern formed on the hourly charts to propel Nifty to the 11,800 level next week. Markets likely to continue the uptrend without any major correction in if there is no stress from the US equity markets on the back of the recent news factors from there, as Dow Jones Index has still not scaled its old highs unlike the tech indices such as Nasdaqs. 

US jobs number 
US jobs data for August will be released on Friday. US job growth declined in July. However, the rate of unemployment fell. Major markets around the world will track the hiring trends in the world’s largest economy in the wake of the trade disputes that the US has kicked off with major economies.  However, we do not believe this is a major datapoint that will drive the market. It could determine one day US markets moves.

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