Stock Market Update for upcoming week: Optimism over quarterly earnings took a back seat as resurging coronavirus fears and weak global cues led Sensex and Nifty to close lower this week. Extending weakness for the third day, Sensex ended 135 points lower at 39,614 and Nifty fell 28 points to 11,642 on Friday. On BSE, 1,464 stocks declined and 1,336 scrips advanced, 969 stocks declined on Nifty, with 889 stocks advancing.
During the week, the 30-share BSE index Sensex and NSE Nifty 50 fell by 1071 points and 288 points, respectively.
Amid less participation from broader indices and weakness in global markets, analysts have taken a highly cautious stance for the markets in the upcoming week. Traders said rising COVID-19 cases in the US and Europe, and delay in the second US stimulus package have left investors wary.
Where better-than-expected September quarter earnings checked losses, the overall sentiment of the financial market was suppressed by concerns over the second wave of coronavirus cases.
Forex and money markets remained shut on Friday on account of Eid-e-Milad. On Thursday, the rupee fell for the second straight session and ended another 23 paise lower at 74.10 per US dollar.
Here are the top 5 factors that will lead the stock market in the upcoming week:
1. Soaring virus cases
Rising coronavirus cases in the United States and Europe, leading to a fresh set of lockdowns have recently caused a trend reversal in equity markets. The challenges with respect to recovery of economic growth and any extension or resetting of lockdown measures have added to the worries and kept investors cautious.
In Europe, Spain announced a state of emergency, while France registered a record increase in infections over the weekend. Italy ordered bars to close early and shut public gyms in a bid to stem a resurgence of the second wave of cases through Europe.
Worldwide, there were 46 million confirmed cases and 11.95 lakh deaths from COVID-19 outbreak.
India's coronavirus caseload stood at 81 lakh on Saturday, with 48,268 new cases being recorded in the last 24 hours. India has the world's second-highest caseload, behind only the US, with deaths toll rising up by 551, taking total mortalities to 121,641.
2. Domestic cues
Markets also went down this week amid lack of required fiscal stimulus. Investors' sentiment further deteriorated as the government's fiscal measures did not meet the strong economic demand, even with resurgence of coronavirus rattling the nation. The domestic market brought some volatility and entered a correction phase during the week over the uncertainty of the next stimulus package by the government.
On the macro data front, latest data from the Reserve Bank of India (RBI) on sector-wise credit growth showed COVID-19 has severely impacted bank credit flow to multiple sectors.
Another data showed that output of eight core infrastructure sectors contracted for the seventh consecutive month and dropped by 0.8 per cent in September, mainly due to decline in production of crude oil, natural gas, refinery products and cement. Country's foreign exchange reserves touched a lifetime high of $555.12 billion after it surged by $3.61 billion in the week ended October 16.
Meanwhile, latest BSE data showed that foreign portfolio investors remained net buyers in Indian markets in October so far, pumping in a net Rs Rs 17,749 crore amid better than expected quarterly results, and resumption of business activities.
Nirali Shah, Senior Research Analyst, Samco Securities said, "The Indian government is trying to revive the pandemic-stricken economy but lacks the firepower, their long term goal of strategic disinvestment to fund the deficit has gone into disarray, so now to compensate, PSUs have started resorting to the age-old tool of share buybacks which would help return some money to shareholders including their major beneficiary the government. This move would possibly provide an effective exit strategy to the shareholders and increase their liquidity buffers. The buyback season is expected to offer support to markets especially the PSUs which would find buyers at lower levels."
Market participants are also expecting a host of financial measures to boost demand ahead of the festive season.
3. Global cues
Besides concerns over the rising spread of coronavirus, the ongoing global cues will continue to dictate the market trend. Equity markets have been cautious globally, with four days left for the outcome of the US presidential election.
Further, most of the major indices closed weak amid fading hopes of US virus relief aid and more government spendings. While most Asian and US indices closed lower in the range of 1-2 per cent, European indices were down marginally on Friday.
There has been a continued delay from White House on the new US coronavirus relief package at a time when Fed policymakers have shown concerns over lack of additional fiscal support, adding that if aid packages are too small or too late, the economy is in for a weak recovery.
Moreover, US presidential election results will be declared on November, which traders said will also add to the volatility in the markets. With the second wave of coronavirus returning to the UK and Europe, lack of agreement on a US stimulus plan has kept sentiments negative for equity investment. Among other things, rebound in the US dollar also needs to be watched, as per traders.
Angel Broking said in its weekly note, "Last week, global markets went through severe pain as participants started to sense Donald Trump's defeat in the upcoming US presidential election. To rub salt on the wound, major European countries imposed lockdown due to the rising coronavirus cases. Tug of war among bulls and bears kept the markets shaky on the back of mixed cues from the global front. We expect that volatility is likely to grip the market in coming sessions as well on the back of U.S elections."
4. Q2 earnings
Investors will keep an eye on the growth in demand and much-anticipated earnings announcements by index heavyweight companies this week. Last week, the optimism from domestic earnings reports was eclipsed by negative global cues. Strong earnings have helped to keep losses checked in the market amid the last few sessions. With companies seeing improvement during festive season, many investors' hope for an economic rebound by this quarter.
"Coming to the ongoing earnings season, mainly all corporates reported growth in their bottom line. This can be attributed majorly to the dramatic reduction in corporate tax rates announced on September 20, 2019. Ideally, it would be the last quarter that India Inc. reports such encouraging PAT numbers and going ahead, there could be a normalisation as such high growth in profitability isn't likely to sustain. Markets have a habit of overreacting to short-term circumstances and it is likely to signal intermediate tops post the result season ends," said Nirali Shah of Samco Securities.
Where Cadila, City Union Bank, HDFC, NTPC, Pfizer, PNB will report earnings on November 2, Adani Ports & SEZ, Alembic, CARE, Dabur, Godrej Properties, Kansai Nerolac, Muthoot Finance, PVR, Sun Pharma, Varun Beverages will announce Sept results on November 3, 2020.
Apollo Tyre, Greenply, HPCL, JK Lakshmi Cement, Lupin, Petronet LNG, Pidilite, State Bank of India, United Spirits among others will publish their respective financial results on November 4. On November 5, ABB India, Bajaj Electricals, Berger Paints, Dish TV, Emami, Godrej Consumer, Torrent Power, and others will post their earnings.
Ashok Leyland, Cipla, Dilip Buildcon, Glenmark, ITC, MRF, Tata Consumer, Union Bank, Vedanta, Voltas will announce results on November 6, while BSE, Divis Lab, IPCA, Magma Fincorp, Sobha, Ujjivan SFB will submit the same on November 7.
Furthermore, shares of index heavyweight Reliance Industries Ltd (RIL) will be under investors' radar in the opening move on Monday. Reliance Industries posted its results post market hours on Friday.
5. Technical outlook
Nifty index has oscillated in a 400-point range and hit the 12,000-mark, with the 12,000-12,025 zone now expected as crucial resistance for the coming week. The 50 barometer index closed the week on a negative note posting a bearish candle.
The 11,500-11,700 levels are likely to act as key resistance points, while supports will come in at 11,550 and 11,400 levels.
Increase in volatility was registered in the market as India VIX surged 13.40 per cent to 24.75 on a weekly basis, its lowest since March 5, 2020. As per analysts, Nifty VIX index registered a breakout from the consolidation zone of three months and the volatility would remain high in the near term.
Sector-wise, the trend was mostly bearish with auto, IT and metal index trading in the red. In the banking sector, analysts said the private sector appeared well-staged when compared to their PSU peers.
Ajit Mishra, VP - Research, Religare Broking said, "Markets would first react to Reliance industries numbers in early trade on Monday i.e. November 2, and then focus would again shift to global cues, thanks to the scheduled US elections. We advise limiting leveraged positions and suggest keeping the existing trades hedged. Defensives viz. FMCG, IT, pharma etc tends to do well in such scenarios but the selection of stocks is the key due to prevailing earnings season."