Market outlook for the next week (26-June to 30-June)

26 Jun 2023 , 09:55 AM

For the week ended June 23, 2023, the Nifty closed at 18,666, once again facing resistance at the 18,800 levels of the Nifty. The fall was quite sharp on Friday, reacting to the sharp rate hike by the Bank of England. Let us first look at the big news flows in the previous week which triggered the market move.

News flows from the previous week to June 23, 2023

There were three major news flows in the previous week. The first pertained to the RBI MPC minutes, the second to global hawkishness and finally the patchy progress of the monsoons. The RBI MPC minutes showed a lot of ambivalence. While the 3 RBI members were still in favour of more rate hikes, the other 3 outside members wanted to ensure that growth does not get hit. One thing is clear from the RBI MPC minutes that, notwithstanding the consensus on the rate decision, the MPC is now fairly divided on the future trajectory of rates. That turned out to be an X-factor for the Indian markets.

There was no relenting on global hawkishness. In his Congressional testimony, Jerome Powell underlined that June was merely a pause and not a reversal of the rate hike. He also underlined the dot plot outlook of two more rate hikes of 25 bps each. In a more significant show of hawkishness, the Bank of England hiked rates by 50 bps to 5% levels as the UK faces the highest levels of inflation since the 1980s. This hawkishness came as a late jolt for the markets, which explains the sharp fall in the last 2 days of the week.

Finally, the monsoon progress has been relatively patchy in the week. While the IMD continues to insist that the rainfall deficiency had reduced, delayed sowing season means loss of Kharif output and India once again has to depend on Rabi season to make up for the foodgrain loss. It also means that Kharif inflation will remain high this year too.

Major stock market triggers for the next week

Here are some key stock market triggers to watch out for in the coming week, which could impact the colour and direction of the market move.

• The previous week saw losses across most key indices. Nifty lost -0.85% down, Nifty Next 50 fell -2.29%, Nifty, Nifty Mid-Cap index was down -0.98% and the Nifty Small Cap index fell -1.08%. The global hawkishness and the patchy progress of the monsoons have remained an overhang for the markets and that is likely to continue in the coming week too. Nifty is likely to continue to face resistance at the 18,800 levels.

   

• The focus this week would be on two sectors that saw the maximum pressure viz. autos and FMCG. Both the sectors have led the Nifty in the last few weeks but fears over a slowdown in rural demand and rural spending has dented these two indices. That pressure is likely to continue. However, the Bank Nifty and the Nifty IT index should show signs of holding up in the midst of the weakness in the markets. 

   

• Markets will watch out for the monsoon updates. With the monsoons entering the second month shortly, more data is likely to come out this week on the acreage covered by Kharif and the impact of delay in the sowing season. This will have larger implications for inflation expectations in the market.

   

• In a volatile market, FPI flows and oil will be key data points this week. Last week, FPIs infused $1.74 billion into equities, taking their June infusion close to $4 billion. This week could see the FPIs bettering the May 2023 level of $5.3 billion and that will be good news for markets. Crude prices have been relatively subdued and the markets will happy as long as the price of Brent crude hovers under $75/bbl, which is likely next week.

   

• Some key data points will be awaited from the US. Firstly, there is the Powell speech on June 29, 2023 where he is likely to give a clear indication on the July policy outlook. Also, the US BEA will release the third and final estimate for Q1 GDP during the week. GDP in the US has progressively fallen in the last 3 quarters and this will remain an important data point for global growth outlook.

   

• The coming week is likely to see a slew of IPOs after a long gap. Three mainboard IPOs will raise close to Rs1,500 crore in the last week of June 2023. These include Ideaforge, Cyient DLM and PKH Ventures. In addition, SME IPOs will also raise around Rs100 crore from the markets during the week. Robustness of IPO markets will be a key factor in more IPOs announcing their dates in the coming weeks.

   

• Two key data points are expected on Indian macros. The core sector growth and the fiscal deficit for May 2023 will be announced on the last day of June. They are material as the government has committed to cut fiscal deficit to 5.9% and the glide path will hold the key. Also, core sector acts as the lead indicator for IIP and GDP growth; and especially the performance of steel and cement will be closely watched.

   

• The next week will be F&O expiry week and that is likely to make volatile. Also, it is a holiday shortened week, so the higher margins have already started on Friday and that is likely to put restraints on the market. The F&O rollover is likely to be largely smooth. A more rangebound Nifty looks more likely for the coming week.

   

• Finally, on global data points to watch, the focus will be on the US data flows like building permits, durable goods orders, housing price index (HPI), API stocks, bank stress test, Q1GDP final update and jobless claims. From other parts of the world, the focus in the EU would be on the ECB Forum and unemployment data while in Japan the focus would be on BOJ Summary, Retail Sales, Consumer Confidence, jobs, and housing starts.

While triggers are most likely to be mixed in the coming week, it is global hawkishness and the F&O expiry that will drive sentiments in the market.

Where do we see markets in the coming week?

The markets closed the previous week below the psychological resistance level of 18,800. Global markets have been weak, so the pressure is likely to transmit this week to India too. With global hawkishness and the F&O expiry, 18,800 will continue to be the resistance for the Nifty. However, with the VIX still at under the 12 levels, the support for the Nifty should stay this week at around the 18,400 levels. In short, it is likely to be a rangebound markets, with some positive thrust likely to come from positive core sector growth data.

Even the options accumulation data of call and put writing is hinting at a range of 18,400 to 18,800 for the Nifty. The low VIX will make it a buy on dips market. For now, the hints are of a rangebound market for the coming week.