This week, the market is likely to consolidate after witnessing volatile movement last week. It would be a busy calendar on earnings and the economic front. Market would react to personal consumption expenditure data that got released over the weekend and would be important for the US Federal Reserve’s policy meeting coming Wednesday.
The Bank of Japan and Bank of England would be announcing their interest rate decisions. Other key events to watch out would be PMI data to be released by US, China and India along with US Consumer Confidence data and US Non-farm payroll data. India will also release fiscal deficit and goods and service tax collections data.
Earnings season will pick up pace this week with several heavyweights set to announce their results. Market would also react to Reliance results which got released on Friday evening.
Last week, Nifty witnessed intense selling in the initial four days and saw some recovery on the last day to close with a loss of 495 points (-2.5%) at 19,047 levels. This was the second consecutive week of negative close wherein Nifty dipped below 19k mark but managed to reclaim that level and end above it for the week.
Broader markets too fell in tandem; with mid and smallcaps down 3% and 2.2% respectively. Metals and Media plunged the most and were down -3.9% and -5.4% respectively. Other sectors were mostly down 2-3% with PSU Banks and FMCG falling the least due to healthy results announced by heavyweights in these sectors.
Tensions in the Middle East, coupled with sticky US Treasury yields, has triggered risk-off sentiment. The Israel-Hamas war has escalated further and is likely to engulf other countries in the Middle East which has led to fear in the markets.
Secondly, the continued hawkish stance by the US Fed had led to a surge in US 10 year bond yields to 5%, which was last seen in 2007 and has been hovering there for the whole of last week. This triggered a global sell-off as the prolonged high interest rates might dent economic growth.
However towards the end, strong US Q3GDP data boosted investor sentiments and led to some recovery in the global equities. GDP came in at 2-year high of 4.9% which was better than expectation of 4.2%, thus reflecting strong US economic resilience.
On the domestic front, mixed Q2 results, continued FIIs selling, rising oil prices and near record high rupee-dollar rate at above 83, did little to soothe markets. But on the positive side, few agencies have upgraded India’s rating which did add some positivity. Even the quarterly earnings have been mostly in line with expectation while few heavyweights like Maruti, Cipla and Dr Reddy announced strong numbers towards the end.
Given the global uncertainties, there could be higher volatility in the near term, thus giving long-term investors an opportunity to accumulate quality stocks at lower levels. We suggest making higher allocation towards large caps as valuations are comfortable along with steady growth prospects.
(The writer is head of Retail Research, Motilal Oswal Financial Services Limited)
(Published 29 October 2023, 22:58 IST)