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F&O rollover, Fed rate decision to be key market movers next week

After Friday's crash, domestic equity market may tread with caution during next week.

Updated: Sep 23, 2018, 12.38 PM IST
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F&O rollover, Fed rate decision to be key market movers next week
Both domestic as well as global macro data will influence market sentiment next week.
NEW DELHI: Domestic equity market benchmarks Sensex and Nifty suffered major losses last week, the third consecutive one in a row.

While Sensex lost 1,249 points, or 3.28 per cent, Nifty erased 372 points, or 3.23 per cent, during the week.

Friday's mayhem on Dalal Street dealt a big blow, sinking Rs 2,02,433 crore worth of investor wealth. At the end of the week, stock investors found themselves poorer by Rs 5,66,187 crore.

Mostly domestic factors dominated the proceedings through the week, even as global markets rose, shrugging off worries over further escalation in the US-China trade war.

More volatility is expected on Dalal Street in the coming week, as September series futures and options contracts expire on Thursday.

After Friday's crash, which was led by financial stocks, the market may tread with caution, and investors may look for other comparatively safer options, including bond yields.

"Overall, market sentiments have turned cautious and we feel with rising bond yields, interest-rate sensitive stocks may come under pressure as their margins erode and cost of borrowing rises," said Hemang Jani, head of advisory, Sharekhan by BNP Paribas.

Let's take a look at the key events and developments that may influence market behaviour through the week ahead:

F&O rollovers to induce volatility
September series futures and options will expire on Thursday and rollover of positions will dominate proceedings through the week, leading to increased volatility in the market. Nifty futures closed in the negative with a loss of 0.84 per cent at 11,178 on Friday. "On the options front, maximum Put OI was at 11,000, followed by 11,100, while maximum Call OI was at 11,500 and 11,400. Fresh Call writing was seen at 11,200 followed by 11,100, while Put unwinding was seen at all immediate strike prices," said Chandan Taparia, technical & derivative analyst at Motilal Oswal Securities.

Rafael spectre looms large
The Rafale saga is getting intense and has brought the ruiling BJP in the defensive mode. The opposition has demanded PM Modi's resignation over Rafale jet deal after former French president Francois Hollande said India had influenced the choice of a local partner. However, the makers of the jets and the French Government have rebutted former French president's claim.

The makers of Rafale fighter jets Dassault Aviation and the French government on Saturday rebutted former French president François Hollande’s claim that the Indian government had thrust industrialist Anil Ambani’s Reliance Defence as an offsets partner in the defence contract. The Centre also denied it had any role in the selection of Reliance Defence even as Hollande himself seemed more circumspect a day after his remarks set off a political storm, TOI reported. Market will see how things shape up for the BJP government in the coming week.

Govt may reduce borrowing
In a move that may assuage some worries in the bond market, the government may announce lower-than-expected borrowing for the second half of the financial year. News agency Reuters reported that senior government officials met with a select group of market participants and assured them that bond market borrowing programme for October-March would be lower than expected. The 10-year bond rose to 8.23 per cent last week, its highest since November 14, 2014 while the rupee fell to a lifetime low of 72.99 to the dollar on September 18.

Fed set to hike rates
Markets globally will closely watch what the US Federal Reserve does with interest rates on Wednesday. While the Fed kept the target range for federal funds rate at 1.75 per cent to 2 per cent at its August 2018 meeting, the market now thinks a 25 basis points rate hike this week may be a strong possibility. As per Reuters, a rate hike at the US Federal Reserve’s September 25-26 policy meeting is all but certain - taking the policy rate to 2 per cent-2.25 per cent and the odds have also increased for a December rise and more bumps into 2019.

Trade tension continues to rise
Tariffs on $200 billion worth of Chinese imports to the US will be effective on Monday and $110 billion of goods from the US will start conceding Chinese tariffs around the same time. Next week’s trade talks between the US and China have been shelved. While globally stock markets seem to have shrugged off the concerns, the question looms if the US will go ahead with another tariff on $267 billion of Chinese goods.

Macro numbers to watch
Both domestic as well as global macro data will influence market sentiment next week. India's fiscal deficit, as well as infrastructure output data for August will be released on Friday.

Minutes of the Bank of Japan’s (BoJ) last monetary policy meeting will be released on Tuesday. The BOJ, in its policy meet last Wednesday, maintained its short-term interest rate target at minus 0.1 per cent and a pledge to guide 10-year government bond yields around zero per cent, reiterating it would keep interest rates extremely low for an extended period. The second quarter final GDP data of the US will be released on Thursday. Besides, Japan's unemployment data for August will be out on Friday. Euro zone will also release its core CPI and CPI data for September on Friday.

Nifty technical charts look weak
Technical analysts say Nifty is likely to see further downslide during the coming week. "Nifty remained under pressure for the entire week. In the process, it broke the crucial support at 11,170, indicating that it could test lower levels. Technically, Nifty remains in a short-term downtrend and further downsides are likely if the immediate support of 11,090 is broken. Any pullback rallies could find resistance at 11,250," a report from HDFC Securities said.

"Nifty has corrected 7.5 per cent from the peak of 11,750 levels. However, it has recovered from the intraday low of 10,866, yet there is no clarity on market bottoming out. The 200DMA lies at 10,750 levels with the RSI at 37. Bank Nifty too corrected by 11.8 per cent and has already broken the 200DMA. The bias remains corrective till we see some signs of reversal. The support for market for the week is seen at 36,060/10,900 while the resistance is seen at 37,640/11,400. The Bank Nifty would have a range of 24,830-26,380," said Vaishali Parekh, senior technical analyst at Prabhudas Lilladher.

Besides the above-mentioned factors, rupee's movement and global crude oil price will also have a say in the market. Plus, Sebi's revised norms on foreign investments by Indians based abroad is also expected to influence foreign portfolio investments.
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