Weakness ahead: Fed speech, US and Indian manufacturing PMI data, global cues are among key market triggers next week

Indian markets have been on a bullish trend since the election results. Both NIFTY50 and SENSEX have made substantial gains this month so far, gaining more than 7%. After the election results, investors are now turning their attention to other key factors that may influence the markets in the coming week.

Investors will closely monitor any Union Budget-related or government policy announcements, as these could trigger stock-specific actions. Market movements this week will be influenced by domestic and global macroeconomic indicators, foreign fund flows, crude oil prices and global cues.

Vinod Nair, Head of Research at Geojit Financial Services, said, “Indian benchmark indices gained this week despite mixed cues from global markets, especially inflation concerns. Investors focused primarily on large-cap stocks, resulting in underperformance of the mid and small-cap segments. The IT sector in particular showed a significant recovery, with private banks outperforming public sector banks in the banking segment.”

On the weekly front, the market witnessed a strong rally and hit a new closing high despite some profit booking on the first day of the July series on June 28. Nifty crossed the 24,000 mark, however, after a continuous rally, the index looks a bit heavy and there could be profit booking if Nifty sustains below 24,000.

Meanwhile, the Bank Nifty index experienced its first meaningful correction after last week's relentless rally. For the selling pressure to continue, follow-up selling is needed; otherwise, the index may remain stuck in a consolidation range.

The cement and telecom sectors remained in the headlines this week, and the news of UltraTech acquiring a non-controlling stake in India Cement raised hopes of further consolidation in the sector. On the other hand, telecom companies are set to raise their tariff rates, which could increase their average revenue per user and profitability.

Arvinder Singh Nanda, Senior Vice President, Master Capital Services Ltd, said, “Market outlook Key domestic and global economic data such as HSBC India Manufacturing PMI, HSBC India Services PMI, S&P Global Manufacturing PMI (June), ISM Manufacturing PMI, Fed speech, JOLT job openings data, ADP Nonfarm Employment Change, initial jobless claims, unemployment rate decision will guide the market next week.”

Nanda further added, “The pattern suggests that if Nifty crosses and sustains above 24,200, it may attract buying interest, which may lead the index towards 24,500-24,700 levels. Conversely, a drop below 23,800 may increase selling pressure, which may lead the index possibly towards 23,600-23,400 levels. For the coming week, we expect Nifty to trade within the range of 24,600-23,600 with a positive bias. Both daily and weekly strength indicators such as RSI are moving upwards and are above their respective baseline levels, supporting the bullish outlook.”

Here are the key triggers for the stock markets in the coming week:

Speech by US Fed Chairman

The upcoming speech by Federal Reserve Chairman Jerome Powell on Tuesday, July 2, 2024 is expected to have an additional impact on market sentiment.

PMI data of America and India

The US and India are expected to release their monthly manufacturing PMI data next week, which will be a positive sign for the Indian stock market.

3 IPOs, 11 listings

There is some relief in the primary market as only three new initial public offerings (IPOs) are expected to open for subscription, raising about Rs 100 crore. This week, turnover worth Rs 2,208 crore was recorded.

D-Street will see the opening of Emcure Pharmaceuticals IPO and Bansal Wire Industries IPO in the mainboard segment. Meanwhile, in the small and medium enterprise (SME), only Ambe Laboratories IPO will raise Rs 1000 crore. Rs 44 crores

On the other hand, around eleven IPOs are expected to be listed on the Indian stock markets next week.

FII Activity

Despite election-related concerns, foreign institutional investors (FIIs) have bought Indian shares worth about Rs 1.5 crore. It was Rs 26,565 crore in June — before the Union Budget and before India was included in JP Morgan’s bond index.

After being net sellers in the past two months, the FIIs' shift coincides with expectations of ongoing reforms after the elections. Analysts attribute this shift to improved GDP growth forecasts and strong earnings reported by Indian companies, which have increased the attractiveness for FIIs.

“FPI investment The Rs 26,565 crore buying in equities in June reverses their selling strategy in the previous two months. Political stability despite the BJP not getting a majority on its own and a sharp surge in markets fuelled by steady DII buying and aggressive retail buying have forced FPIs to become buyers in India. It appears that FPIs have realised that selling in the worst-performing market would be a wrong strategy. “FPI buying may continue provided there is no sharp jump in US bond yields,” said Dr VK Vijayakumar, chief investment strategist at Geojit Financial Services.

The loan flow so far for 2024 is as follows 68674 crores. In the long term this will reduce the cost of borrowing for the government and cost of capital for corporates. This is positive for the economy and hence the equity market.

Data from NSDL for the first fortnight of June shows that FPIs bought in realty, telecom and financials. FPIs were selling in IT, metals and oil and gas. FPIs are likely to continue their buying trend in financials.”

Global signals

On the global front, a rise in unemployment claims in the US and weak housing data have raised expectations of interest rate cuts in September. In the week ahead, the focus will be on manufacturing PMI data from the US and India and the Fed chairman's speech. With no major risks visible for the domestic market in the short term, the undercurrent is positive. All eyes will be on the Union Budget proposals which will guide the market in the medium term.

oil prices

Oil prices rose early in Asian trading hours on Friday, marking a third consecutive week of gains. Rising geopolitical tensions and weather disruptions overshadowed signs of weak demand.

August Brent crude futures due to expire on Friday rose 15 cents, or 0.2%, to $86.54 a barrel by 0020 GMT. Meanwhile, the September Brent contract also gained 0.2% to $85.44 a barrel.

US West Texas Intermediate crude futures for August delivery rose 24 cents, or 0.3%, to $81.98 a barrel.

Oil prices have been rising steadily despite signs of a slowdown in demand from the United States, the world's biggest oil consumer, due in part to growing tensions between Israel and Hezbollah in Lebanon, which could escalate into a wider conflict involving major oil exporting countries in the Middle East such as Iran.

corporate action

The coming week is packed with corporate activity as shares of many companies will trade on ex-dividend, ex-split and ex-bonus. Many companies including Mahindra & Mahindra, Piramal Enterprises, Tata Power are trading on ex-dividend in the coming week.

See the full list here.

Technical view

The June series saw Nifty end with a significant gain of 7% amid volatility. According to analysts, this was the best series of the current calendar year, helped by the BJP-led coalition forming a government for the third consecutive time.

The NSE Small-cap index and NSE Mid-cap index outperformed Nifty by ~2.4% and 1% respectively. The ratio of NSE Mid-cap index to Nifty closed at 2.3082 against its all-time high levels of 2.3612 seen on June 24, 2024. Nifty rollover is at 76%, higher than its previous 3-series average of 69%. Cumulative futures open interest is at 15.1 million shares, which is the highest open interest seen on inception day in the last 2 years. Bank Nifty rollover is at 71%, lower than its previous 3-series average of 76%. This series started with a cumulative futures open interest of 2.7 million shares, as against its previous 3-series average of 3 million shares,” said Neeraj Agarwal, Technical & Alternative Research at JM Financial.

Nifty's next target is 24,500 levels, with the 23500 zone holding as support for now. “Nifty witnessed a strong move to cross 24000 for the first time during the week with four consecutive sessions of strong positive candle formation and is projected to move further higher in the coming days with the bias and sentiment remaining strong. As mentioned earlier, the next target for the index would be 24500 levels, with the 23500 zone holding as support for now.

Banknifty created history by hitting 53000 level for the first time ever as most frontline banking stocks are set to move further higher and next targets of 53500 and 55100 are seen in the coming days. Vaishali Parekh, Vice President, Technical Research, Prabhudas Lilladher Pvt Ltd said, “Support for the day is seen at 78800/23900 levels while resistance will be seen at 79700/24200 levels.”

Disclaimer: The views and recommendations expressed in this analysis are those of the individual analysts or broking companies and not of Mint. We strongly advise investors to seek advice from certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.

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