Markets This Week: Markets settled on a flattish tone last week followed by selloffs in banking, consumer durables, metals, IT, and auto stocks. Markets ended higher for the third straight week largely led by positive global cues in the last session. On the domestic front, favourable updates on monsoon progress further boosted sentiment. After the strong start of the week, the benchmark hovered in a range till the end but maintained a positive tone, thanks to healthy buying in select index majors across sectors. Consequently, the Nifty index ended higher by 1.4 per cent to close at the 16,584 level. The broader indices too witnessed decent traction as both midcap and smallcap ended higher by 1.3 per cent and 4.4 per cent respectively.
Ajit Mishra, VP – Research, Religare Broking Ltd, said: “With earnings season behind us, the focus would be on the upcoming MPC’s monetary policy review meet, which is scheduled during June 6-8. Markets have already priced in another hike citing the sticky inflation however the focus would be on commentary amid the updates of a favourable monsoon. Besides, the performance of global markets and movement in crude will also be in focus. On the macroeconomic front, participants will be eyeing IIP data on June 10.”
RBI Meeting
The Reserve Bank of India’s Monetary Policy Committee will meet next week with the outcome expected on June 8. Markets are yet again preparing for a volatile week with RBI’s policy holding the major spotlight given the worsening condition of inflation. Experts are predicting a rate hike between 25 basis points to 50 basis points by RBI following the US Fed trend. Also, banks’ reactions towards their lending and deposits amidst RBI’s policy repo rate change will be keenly watched.
ECB Meeting
Besides the Reserve Bank of India, the European Central Bank is also set to meet next week with the outcome expected on June 9. The ECB recently suggested it needs to move quickly on interest rate hikes after Eurozone inflation touched multi-year highs and crossed the eight percent mark in May.
Crude Oil Prices
The price of black gold will be in focus next week as a recent upswing in the commodity’s price had investors concerned over the trajectory of inflation. Global Brent futures touched a high of $123 per barrel during last week amid new sanctions imposed on Russia by the European Union. Prices cooled off towards the end of the week as the Organization of Petroleum Exporting Countries (OPEC) decided to hike oil output to ease supply pressures.
Macro Economic data
Several key economic data points will also be on investors’ radar next week. The Street will look out for China’s inflation data for May for signs of economic revival as lockdowns ease in cities like Shanghai. Further, India’s industrial production data for April will also be released later next week. Besides, global markets will watch out for the balance of trade data in China and the inflation print for May in the US.
FII Selling
Selling pressure from foreign institutional investors (FIIs) will continue to dominate investor psyche as the cohort remained net seller of Indian equities for another week. Last week, FIIs were net sellers to the tune of Rs 3,417 crore taking their total for the year to Rs 1.8 lakh crore. Their selling momentum slowed considerably last week raising hopes that the cohort may soon turn net buyers in the market.
Nifty Technical Outlook
The Nifty 50 index failed to hold above its 50 day moving average of 16,870 points on Friday and closed the day below that crucial level. “A long negative candle was formed on the daily chart after opening higher. Technically, this pattern indicates a formation of counter attack of bears type candle pattern (not a classical one) at highs. But the formation of such a pattern amid a range movement rules out any sharp negative impact as of now,” said Nagaraj Shetti, technical research analyst at HDFC Securities.
Shetti, however, asserted that the near-term uptrend in the market is still intact and there is no sign of any reversal yet. The support for the index is likely to be around 16,350-16,400 points while 16,800 points remains a key resistance.
What Should Investors Do?
Mishra said: “Markets have been witnessing a rebound for the last 3 weeks however the move lacks decisiveness due to lingering challenges like global tightening due to inflation, geopolitical tension, etc. We feel Nifty would regain some strength above 16,900 however a break below 16,400 will put bears back in the game. Meanwhile, participants should focus on sector/stock selection as markets are offering opportunities on both sides but avoid going overboard.”
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