Key driving factors for the markets in the current week

The previous week was data heavy with most of the key data points like the CPI inflation, WPI inflation, US inflation and trade data being announced. However, the current week will be the interim period between the data announcement and the actual FOMC policy announcement in the last week of July. The debate is still on whether the Fed will plump for a 75 bps rate or go more aggressive at 100 bps. Amidst this uncertainty, here are some of the key factors that will drive the stock market action in the current week.    

Key triggers for the week to focus on

The previous week saw Nifty closing -1.06% lower while the mid-cap and the small gap closed with smaller losses. The selling was most heavy on TCS with the numbers disappointing on profit growth and also the negative surprise on the attrition front. Here is what you need to watch out for in the current week.

    a) The first big story is the quarterly numbers. The TCS negativism in the markets may have played out in the current week and while there is not much to celebrate about tech stocks, the negatives may already be in the price. However, results of HDFC Bank last weekend could be a negative surprise in terms of the lower sequential profits and the spike in the levels of gross NPAs on a sequential basis. That is likely to be seen this week.

    b) Now for the major results announcement during the current week. Among the large cap segment, some of the major results to be announced this week include Ambuja Cement, Wipro, Reliance Industries, HDFC Life Insurance, Hindustan Unilever, JSW Steel, ICICI Bank, Ultratech Cement and Kotak Mahindra Bank. Among key mid-cap results this week are RBL Bank, Bandhan Bank, Rallis, Gland Pharma, HZL, IDBI, Crompton and Persistent.

    c) The ECB, Fed and the Euro will play a key role in this week. For instance, the ECB Meet is likely to commence the rate hike cycle even as Japan maintains its silent status quo. Like the US and UK, even the Euro region has seen rampant inflation, some hawkishness from the ECB is inevitable. Also, the Euro-Dollar touched parity for the first time in 20 years and that could be a key variable to watch out for this week.

    d) Two factors are currently playing on the rupee viz. FPI selling and the price of crude. Compared to the $6.3 billion sold in June and the $35 billion sold by FPIs since October 2021, July has been relatively sober with just about $1 billion of equities being sold in the first half of the month. The other big factor has been the crude oil prices, which temporarily dipped below $100/bbl. However, supply lines are still constrained so it remains to be seen to what extent the prices below $100/bbl can really subsist.

    e) No discussion on the stock markets is complete without the how the rupee will pan out. It reached the threshold of 80/$ last week and this week it could actually test the 80/$ levels. Demand from importers and borrowers is likely to pick up steam in the coming days and push the INR beyond the 80/$ levels. A related variable will be the forex reserves balance to be announced on Friday. It last fell to $580 billion (now down nearly 8% from the peaks). The depletion is largely due to RBI defending the rupee.

    f) Finally we come to the global specific data points. In the US markets, we can track foreign bond investments, Fed speeches, existing home sales, jobless claims and the PMI (both manufacturing and services. In rest of the world, the focus will be on the EU Inflation levels, outcome of the ECB meet; Japan BOJ rates, trade, inflation; China Foreign Direct Investment (FDI) flows.

To sum it up from a stock market perspective, the F&O cues suggest a range of 15,700 on the downsides and 16,350 on the upsides for the current week on the Nifty. However, with VIX falling to 17.5 levels, traders may see reason to buy on dips.