Dalal Street Week Ahead | 10 key factors that will keep traders busy

 

Volatile trade is expected to continue the coming week, with focus on the repo rate, monthly F&O expiry, forex reserves, current account numbers, and the US GDP. Auto stocks may also be in focus ahead of September sales data.

Volatile markets closed lower the week ended September 23 following weak global cues, as rising fears of a recession due to aggressive policy tightening by the US Federal Reserve (the Fed), along with fresh escalation of tensions between Russia and Ukraine, dented sentiment.

Benchmark indices remained under pressure for the second consecutive session, with the BSE Sensex falling 742 points, or 1.26 percent, to 58,099, and the Nifty 50 declining more than 200 points, or 1.16 percent, to 17,327, dragged down by most sectors barring auto and FMCG.

The broader markets also traded in the negative terrain as the Nifty Midcap 100 index dropped 1.32 percent and the Smallcap 100 index dipped 2.3 percent.

Volatile and range bound trade is expected to continue the coming week too, with focus on RBI policy, monthly futures and options (F&O) expiry, and global cues — including the US GDP, experts said.

"We expect volatility to remain high as we have important events like the Reserve Bank of India (RBI) Monetary Policy Committee's (MPC) policy review meeting, and monthly derivatives expiry, scheduled during the week. Besides, prevailing pressure in global indices will continue to weigh on the sentiment," Ajit Mishra, VP – Research, at Religare Broking, said.

It seems the markets are finally giving in to the pressure of global indices, especially the US indices, and are likely to inch lower yet. Hence, participants should align their positions accordingly and maintain positions on both sides, Mishra said.

Here are 10 key factors that will keep traders busy next week:

1) RBI policy

The MPC’s decision on the interest rate is due on Friday, and the street will be closely watching this. With elevated inflation worries, the MPC is likely to hike the repo rate by 25-35 bps (basis points) . With the current scenario in forex markets, a 50 bps hike can't be ruled out, with no change in inflation and growth forecast for the full year, experts said, adding that the focus will also be on the Rupee which hit record lows last week.

``Inflation remains high at around 7 percent and is unlikely to come down any time soon. This means that a rate hike is given. The quantum is what the market is interested in,’’ Madan Sabnavis, Chief Economist at Bank of Baroda, said.

While a hike of 25-35 bps would have signalled that the RBI is confident that the worst of inflation is over, recent developments in the forex market could prompt a 50 bps hike to stay on track with other markets so as to retain investor interest, he added.

2) Rupee at record low

The Indian rupee weakened for the eighth consecutive session on Friday, losing 184 paisa in the period to end at a record closing low of Rs. 80.99 to the USD, while the weekly loss was 124 paisa, weighed down by a strong US currency, escalation of Ukraine-Russia tensions, and aggressive policy tightening by several central banks globally — including the Fed and the Bank of England (BoE) to control inflation. Weakness in equity markets also weighed on the currency.

The rupee registered a fresh all time low, at 81.23 to the dollar. The panic was created by the dollar index (DXY) which witnessed strong buying as a hedge against interest rate hikes and the inflation cycle, Jateen Trivedi, VP -  Research, at LKP Securities, said.

He thinks the rupee downtrend will continue as long as positive triggers are not witnessed from the inflation front. The next trigger for the rupee is the MPC policy meet next week, which should provide some respite to the fall of the rupee. Prior to the meet, the rupee could range between Rs. 80.50-81.55.

3) Dollar at multi-year high

Another key factor to focus on would be the US dollar index, which measures the US dollar value against a basket of the world's six leading currencies. The US dollar index has increased more than 7 percent in the last one-and-half-months, to hit a record high of 113 last Friday, the highest since May 2002. This has come in the wake of consistent interest rate hikes by the Fed and expectations of further aggressive tightening to bring inflation down to the target of 2 percent, even at the cost of some economic pain.

Several experts expect the reversal in interest rates to take place in 2024 now, instead of 2023 earlier, especially after the hawkish commentary by the Fed.

"We still believe that post the recent Fed dot plots (4.6 percent terminal rate through early 2023), the inflation print will likely disappoint (vis-à-vis other economies). We believe the Fed's commentary is aimed at keeping financial conditions tight, which therefore emphasises controlling inflation at the cost of growth. The Fed has thus guided the markets to stop reacting to any softer economic numbers," Emkay Global said in a note.

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