Stock Market: RBI policy, auto sales, FII flows among key factors that may guide D-St this truncated week

After heightened volatility in the domestic equity market last week due to rising concerns over economic recovery, market participants this holiday-shortened week will focus on the RBI policy meet and FII inflows amid worsening Covid-19 cases in the country. The domestic equity market will remain closed on October 2, Friday, on account of Gandhi Jayanti.

The benchmark equity indices BSE Sensex and NSE Nifty settled nearly 4 per cent lower at 37,388 and 11,050, respectively, for the week ended September 25.

That said, the week ahead is going to be a busy one with a host of other macro-economic data releases including monthly auto sales figures, some of which may have a bearing on market behaviour or select sectors. Going by the buzz on Dalal Street, here are the top factors that are likely to guide the market going ahead.

RBI policy outcome

The Reserve Bank of India (RBI) is likely to hold repo rate in its monetary policy meeting scheduled to take place on October 1. The apex bank kept its benchmark repo rate at 4 per cent during its August meeting, aiming to ensure inflation remains within target going forward following a recent climb in prices due to the coronavirus pandemic.

Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, said the near term elevated inflation may push the RBI to remain on the status quo in the upcoming policy.

“Constraint by the inflation mandate, unless the durable reduction in inflation is visible, we see limited room for policy actions. Additional monetary easing will remain entirely a function of how the growth-inflation trajectory evolves in the months ahead. The RBI would continue to emphasize its accommodative stance along with tweaks to liquidity and regulatory operations to keep financial market conditions benign,” Bhardwaj said.

SC decision on interest waiver

The Supreme Court last week adjourned hearing in the loan moratorium and interest waiver case to September 28. Market watchers believe that the financial service sector should be tracked closely, as any conclusive decision by the Supreme Court would remove the overhang from the sector.

Auto sales figures

Auto companies will announce their monthly sales data for September from October 1. In its latest report on the auto sector, India Ratings and Research on Friday said retail sales are likely to continue to lag behind wholesale sales in September 2020 although the sector has reported a month-on-month rise in sales over May-August 2020 after the washout in April. It added that sales are likely to remain sluggish in September, especially on the retail side, “due to the inauspicious period of Shraadh”.

Covid-19 cases

Fast-rising Covid-19 cases are creating headwinds for the market. The country’s infection tally sprinted past 59 lakh on Saturday with 85,362 fresh cases being recorded in a day, while the death toll mounted to 93,379 after over 1,080 people succumbed to the disease in 24 hours.

Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services, said, “We expect the market to consolidate in the near term given the rising Covid cases globally, economic uncertainty and continuous FII selling for the past few sessions.”

FII flows

Foreign portfolio investors have sold shares worth over Rs 4,000 crore in September so far. This indicates an uncertain trend in the domestic equity market. Any further selling by overseas investors will put further pressure on the equity market.

PMI data

Traders will also be waiting for Markit Manufacturing PMI for the month of September scheduled to be released on October 1. The IHS Markit India Manufacturing PMI increased to 52 in August 2020 from 46 in the previous month, easily beating market consensus of 48.2. The latest reading pointed to the first monthly expansion in factory activity since March, led by an improvement in customer demand as client businesses reopened following the easing of lockdown restrictions.

Technical outlook

The Nifty 50 formed a bullish candle on the daily chart on Friday and a bearish candle on the weekly chart. Arun Kumar, Market Strategist at Reliance Securities, said, “The weekly price formation is still negative. Nifty50 could face headwinds close to the 11,200 level. On the downside, one needs watch the levels between 10,640 and 10,758 marks.”

Global cues

On the global front, investors will be eyeing macroeconomic reports from the world’s largest economy, United States, starting with Dallas Fed Manufacturing Index on September 28, followed by Goods Trade Balance and Wholesale Inventories MoM, Redbook on September 29, GDP Growth Rate, Chicago PMI on September 30, personal spending, initial jobless claims, Markit Manufacturing PMI on October 1 and finally unemployment rate, Michigan Consumer Expectations Final, Baker Hughes Oil Rig Count on October 2.

Other factors
Announcement of any additional economic stimulus package from the Indian government would increase overall optimism in the market. Investors should also keep an eye on the movement of rupee next week. A likely US fiscal stimulus package combined with caution over the upcoming monetary policy review may limit the rise in the USDINR spot. The local currency on Friday staged a smart rebound to close 28 paise higher at 73.61 against the US dollar, tracking gains in Asian peers and local equities.

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