Market outlook for this week (19 June to 23 June)

19 Jun 2023 , 09:57 AM

For the week ended June 16, 2023, the Nifty closed at 18,826, above the psychological level of 18,800. It still needs to sustain with volumes but the good news is that the news flows have helped the market breach above the barrier. Let us first look at the big news flows in the previous week which triggered the market move.

News flows from the previous week

The previous week had begun on a positive note with the RBI holding policy rates at 6.5% for the second policy in succession. The week was all about data flows. CPI inflation came in lower than expected at 4.25% while WPI inflation dipped further into the negative at -3.48%. The inflation story was that manufacturing prices are coming down sharply and that is likely to be positive for Indian corporates. On the growth front, the index of industrial production (IIP) bounced sharply to 4.2% maintaining the average IIP at over 5% since November 2022. But there were more positive cues from the US markets.

In what was already expected, the US Fed announced a pause in its June policy statement. This is the first pause by the Fed in 15 months. In this period, the Fed implemented 10 rate hikes, pushing the rates higher by 500 basis points. Of course, the Fed has still expressed concerns over inflation and guided for 2 more rate hikes of 25 bps each. But markets were also gratified by the fact that US consumer inflation was sharply lower at 4.00% for May 2023, albeit still some distance away from its inflation target of 2%.

There were some concerns also. Merchandise trade deficit widened sharply to above $22 billion for May while the service surplus came under pressure. Clearly, the IT exports and other BPO services are feeling the pinch of weak Tech spending and pricing pressures. That is not great news for the IT sector. However, the CAD pressure is likely to be limited in FY24.

Major stock market triggers for the next week

Here are some of the major stock market triggers for the coming week, which could impact the colour and direction of the market move.

• Nifty closed the week +1.41% up and Nifty Next 50 closed +2.73% higher. With the Nifty breaching above 18,800, the next veritable barrier could be at 19,000. The rally was quite strong in the mid-cap and small cap indices, which rallied more than 2.8% in the week. While oil and FMCG indices continue to be robust, the Bank Nifty has been flat. With 37% weight, the financials need to flatter for Nifty to get higher this week.

   

• Foreign portfolio investor (FPI) action continues to be positive for the month of June. In the latest week ended June 16, 2023, the FPIs infused $804 million and they have already infused $2 billion into Indian equities with 2 more trading weeks to go. For the calendar year 2023 overall, FPIs have infused $5.5 billion into equities and another $1.1 billion into debt paper. It looks like debt is also attracting interest and that is a good sign.

   

• Two big factors to watch out this week will be the progress on monsoons and the Prime Ministerial visit to the US. After predicting normal rainfalls for the year, now the IMD is veering towards heat waves caused by El Nino. Even if rainfall is eventually adequate, weak sowing season could impact the Kharif output. On the PM visit, key things to watch would be the Russia debate and how serious the US is about China Plus One strategy.

   

• In global macros, the Fed meeting is done and the minutes are still 3 weeks away. During the coming week, Jerome Powell will explain the logic for a rate pause in June to the US Congress. His arguments would be closely watched. In the next few days, the PCE inflation data will also be out, which is the deciding factor for US rates trajectory.

   

• On the IPO front, it is the SMEs that are still dominating with mainboard IPOs few and far between. In the coming week one mainboard, HMA Agro Industries will open for subscription, where enthusiasm is expected to be high after the smart listing of IKIO Lighting IPO last week. In addition, 5 IPOs of SMEs are likely to open this week.

   

• One macro factor to watch would be the Brent Crude, which bounced to $76.15/bbl towards the close of the week. However, the market impact would be limited unless the crude prices decisively goes above $80/bbl. That looks tough for now with the central banks across the developed still hawkish and an inverted yield curve still pointing to a likely recession later this year. China demand is expected to be weak. 

   

• Finally, let us look at some major global data points to observe this week. In the US markets, the focus would be on the Powell testimony to US Congress, housing starts, jobless claims, API crude stocks, current account deficit, home sales and composite PMI. In cues from rest of the world (ROW), focus will be on EU current account and new car sales; UK inflation, BOE rates and PMI; Japan IIP, inflation, PMI, and BOJ minutes.

Overall, the triggers appear to be positive for the coming week, although with little of fresh data flows, it will boil down to the market levels and sentiments.

 

Market outlook for the coming week

The markets closed the previous week above the psychological resistance level of 18,800 and the early indications from the SGX Nifty are hinting at Nifty above 18,900. The next effective level to watch for the Nifty would be 19,000. The robust direct tax collections in the first quarter will buoy the sentiments in the market. The sentiments stay positive on the back of a week of positive news flows.

For the Nifty, 18,800 and 18,530 will be the levels to watch as supports. Even the options data of call and put writing is hinting at a range of 18,700 to 19,000 for the Nifty. To top it all, the VIX still remains extremely subdued at around the 10.84 levels, close to the lowest it has been in a long time. That paves the way for a typical buy on dips market.