Coronavirus continued to grab headlines during the week gone by and the next week may not be much different as the number of new cases is rising across the world. Along with this, new developments in the YES Bank story will be a key factor dictating market direction.
Meanwhile, the government will release key macroeconomic data, including those for factory output and inflation, which will be watched keenly to gauge the state of the economy.
“Given the volatility and fear psychology, market participants are likely to drift away and reduce exposure to equities till clarity emerges on financial distress (YES Bank and Covid-19). Markets are expected to remain low with subdued interest and little activity from active investors,” said Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote.
Modi advised investors to accumulate respective leaders from private sector banks, NBFC, FMCG, IT and pharmaceutical sectors, as they are likely to deliver good return on investment from a 3-5 years perspective.
Here are the factors that may drive market this week:
Coronavirus scare: The Covid-19, or coronavirus, outbreak is far from peaking as the number of cases continued to rise across the world. According to latest figures from the World Health Organization, there were at least 103,168 cases till now while global deaths were pegged at 3,507. Italian Prime Minister Giuseppe Conte announced early Sunday that the entire region of Lombardy and a number of provinces in other regions were put under lockdown, affecting a quarter of the Italian population. Italy is the worst affected country in Europe. As per various estimates, the virus may make a dent of up to $2.4 trillion to the world economy.
“Markets seem to be in a bearish trend with heightened volatility for the time being and investors will be watchful for any news regarding the number of confirmed coronavirus cases around the world,” said Vinod Nair, Head of Research at Geojit Financial Services.
YES Bank saga: Marketmen will keenly watch the unfolding developments in the YES Bank saga. State Bank of India, which has shown interest in reviving the private lender, said it would invest up to Rs 10,000 crore. “It is on the expected lines,” said Gaurav Dua, Senior Vice-President and Head of Capital Market Strategy & Investments at Sharekhan by BNP Paribas. “This is a bailout exercise for the bank and its depositors. The fresh infusion will help the bank survive, but the future growth is still questionable. There isn’t much for minority equity investors in the stock,” said Dua.
YES Bank will remain under the control of the Reserve Bank of India until a resolution is reached. The bank has a huge retail shareholding at 48 per cent and any decision will affect them. Shares of the company saw worst ever fall on Friday dropping 56 per cent to Rs 16.20. Any adverse news going ahead may hit the prices further. Many brokerages have target price on the bank as low as Re 1.
FII outflow: Foreign institutional investors are in sell-off mode. In last 15 sessions, they have withdrawn a net Rs 21,937 crore from Indian markets, as per NSE data compiled by Accord Fintech. February 24 onwards, FIIs have been net sellers of equities in India every day. Market veteran Raamdeo Agrawal said it was largely because ETF investors were withdrawing money. “The kind of money which has been pulled out by FIIs are coming basically from ETFs. ETF redemptions are there and those are being encashed here. Good that we have net inflow and people were sitting on cash, so they are buying now,” Agrawal said in a recent interaction.
Rupee racing towards 75 level: A superior performance of dollar against the rupee as worried investors as depreciating rupee means higher import costs for India. In the past week, the rupee rose over 2 per cent to cross 74 level against the US dollar. If the currency continues to deteriorate, it would start messing up with India’s fiscal math. IT and US-focused pharma companies may benefit from this.
IIP data: Indian government will release factory output data for January on March 12. Factory output contracted in December. The National Statistical Office (NSO) said that the index of industrial production (IIP) shrank 0.3 per cent in December from a 1.8 per cent expansion a month ago.
However, this for January the data may improve as India’s core sector expanded 2.2 per cent in January, a mild increase from 2.1 per cent in December, data released by the commerce and industry ministry showed.
February Inflation Print: Market participants will also keep a keen eye on inflation data for February to be released on March 12. RBI will also watch the numbers as its decision to cut interest rates in the next policy meet depends on this. Retail inflation, measured by Consumer Price Index, worsened to 7.59 per cent in January, government data showed. The inflation remained above the Reserve Bank of India’s medium-term target of 4 per cent for a fourth month in a row. India Inc. will hope for a moderation if it expects a rate cut.
Technical outlook: Nifty on Friday broke below the immediate support of 11,000 and formed an indecisive ‘Spinning Top’ on the daily chart. The index is in the oversold zone and zone around 10,800-900 could offer some support to the index. On the upside, the index should face resistance in the 11,100-11,200 range, said analysts.
“After witnessing heavy sell off, the index is trading at the lower end of the rising channel, which has supported multiple selloffs in the past and will therefore act as a strong support currently at 10,800-850 which is evident on daily charts,” said Jimeet Modi.
The current situation properly aligns with short term panic bottoms, channel support along with deep oversold levels will act as strong support for the bears to cover their short positions and will give bulls a chance to make a short term come back, he said.
