Key triggers driving stock markets in this week

The current week is likely to be highlighted by the RBI policy as well as US data flows ahead of the last Fed policy for the year 2022 in the next week. It is anticipated that the dollar index and the rupee dollar equation should reflect the Fed rate expectations in the current week. Here are some of the key cues that investors can watch out for in the current week starting 05th December 2022.

a)    The investors are now increasingly gravitating towards mid-caps and small caps for two reasons. Firstly, it is a search for alpha and secondly there is more confidence in the markets to move away from the large caps. Also, large caps have rallied sharply in last couple of months. In the previous week, the Nifty rallied by just 0.99% while the mid-cap index rallied by 3.10% and the small cap rallied by 2.34%. That trend is likely to continue in the current week also.

b)    The all-important December RBI MPC meet starts on 05th December and will culminate with the announcement of the RBI policy on Wednesday, 07th December. However, the RBI is not expected to make any policy turnaround in December, although it may hint at a sobering of hawkishness in the coming policies. That should be positive enough, as a trigger for the markets. 

c)    There are two key signals from the US, which indicate that Fed hawkishness may start to taper from December. In its coming policy, the Fed is likely to reduce the rate hikes to 50 bps on 14th December. For the current week, the US dollar index and US bond yields will be seen as legitimate lead indicators. In the previous week, US bond yields tapered as did the US dollar index. That trend is likely to continue this week too.

d)    In IPO action, there are no fresh IPOs opening in the current week, but expect more IPO announcements after the last RBI policy for the year. However, Dharmaj Crop Guard IPO will list on the stock exchange during the current week and the listing is expected to be strong based on GMP cues and the strong subscription. Uniparts will see finalization of allotment status this week, but listing will be next week.

e)    FPI flows will be critical in this week and through December 2022. The month of November saw net FPI inflows of close to $4.5 billion. This can be partially attributed to the MSCI index realignment by passive funds, but that was just about 15% of the flows. There has  been a lot of genuine FPI interest and after the deluge in August and November this year, the first week of December will hold the key to FPI numbers.

f)    Oil price caps outcome to be observed closely next week. The EU and the US have suggested an oil price cap of $60, which Russia has refused to accept. The price of crude oil could predicate on the outcome. Russia and the West can agree to a price between $60 and $70, then global oil prices could taper. Any supply disruption caused by Russia to EU could result in a big oil price rally. Oil will hold the key to rupee movement in the current week as it hovers around 81.50/$ level.

g)    For the stock markets, the link between politics and economics can be quite. While we await the exit polls on the Gujarat elections, ahead of the actual announcement of results on 08th December, there is still lack of clarity. Markets will prefer a strong performance by the ruling combine with central elections also coming up in 16 months from now. Gujarat would be seen as an important precursor to the bigger picture.

h)    With GDP and core sector numbers out, the only macro data to immediately look forward to is the Composite PMI. The Q2FY23 GDP was largely driven by the services sector. Hence the high frequency PMI Services data for November will be keenly awaited on Monday. PMI Services had shown a positive momentum in the previous month and that momentum is expected to be sustained.

i)    In terms of market technicals, the Nifty is expected to hold the 18,500-19,000 range. However, any breach above 19,000 resistance would depend on the positive surprises that the RBI is able to hint at in its RBI monetary policy announcement this week. A less hawkish stance would be welcomed. However, with VIX hovering around the 13-14 range, the undertone still remains that of a “buy on dips” market.

j)    Finally, there will be some key global data points to keep an eye on this week. In terms of US data points one can keep a watch on the US Composite PMI, factory orders, total vehicle sales, balance of trade, API crude stocks, jobless claims, Purchasing Power Index (PPI) and mortgages. Among key regions in the rest of the world, the focus in EU will be PMI, Retail Sales and Q3 GDP. While Japan data will focus on PMI, Household Spending and Q3 GDP; China data flows will include PMI, Trade, Inflation and PPI.

It is expected to be an action packed week, with the RBI policy likely to be the key event to watch out for.