stock market outlook: Adani FPO, Budget, Fed action among 8 factors to keep D-Street on its toes this week

The rout on Dalal Street last week has unnerved traders as it added to the uncertainties already prevailing in the market. The week ahead will be an extremely busy one for the domestic market as big events are lined up that will decide the fate of bulls.

Corporate earnings, the Union Budget, the US Federal Reserve’s monetary policy action, automobile sales data, are some of the major events and data points that will keep investors glued.

“The fiasco in the last two days has dampened overall sentiments and certainly disrupted prices across the board,” said Sameet Chavan, chief analyst – technical and derivatives at Angel One.

From an optimist’s point of view, it’s good that the market is approaching the Budget on a lighter note, and any favorable outcome would lift the markets higher, Chavan said, but added that any slight disappointment would result in a further aberration in the market.

Here’s breaking down the factors that will drive markets in the week ahead:

Adani Enterprises FPO
The massive sell-off in stocks of Adani group last week has raised doubts over the smooth sail for the Rs 20,000-crore follow-on public offer (FPO) of Adani Enterprises. Reports on Saturday said that merchant bankers are mulling a cut in the offer price and extension of the sale date after the sharp fall in stock price.

However, the company has clarified that the FPO remains on schedule at the planned issue price. On Friday, the day 1 of the FPO, the issue was subscribed just 1%. The fate of the FPO hinges upon the recovery in the stocks on Monday.

Budget 2023
The next big event to watch out for will be the Union Budget for FY24 that will be presented by Finance Minister Nirmala Sitharaman on February 1.

Most in the Street expect the budget to remain growth-focussed while also giving emphasis to schemes to boost rural and agri incomes.

They expect the government to increase capital investments to support infrastructure and manufacturing, while extending tax breaks to more sectors under the production-linked incentive scheme.

All eyes will be on whether the government does any tinkering to long term capital gains tax or securities transaction tax.

US Fed policy meeting
February 1 is likely to be a long day for Dalal Street, as after hearing Sitharaman in the morning, investors will switch to Jerome Powell who will issue the US Federal Reserve’s monetary policy decision.

Fed officials are widely expected to raise interest rates by 25 basis points, which would mark the smallest rate hike since March 2022. But the Fed’s assessment of the economy and trajectory of rates for 2023 will be closely watched by investors.

Earnings
A plethora of companies are scheduled to release December quarter earnings in the coming week.

Larsen & Toubro,

, , Corp of India, , UPL, , SBI, Housing Development Finance Corp, , ACC, , , , , , , Divi’s Laboratories, and are the major companies reporting earnings next week.

Macroeconomic data
Some key data points will be released globally that investors will track. Initial GDP estimates for the December quarter will be release in Europe.

The manufacturing PMI data for December will be released across major countries such as the US, Europe, China, India, and other major countries.

On Wednesday, automobile companies in India will release wholesale sale numbers for December.

FII/DII flows
Foreign institutional investors have remained net sellers in the market and the Adani fiasco only aggravated it last week. However, domestic institutional investors have supported the market by buying into the dips.

It will be interesting to see if the Budget or Fed gives FIIs a reason to make a comeback to one of the best performing emerging markets.

FIIs’ strategy in January has been selling in India and buying in relatively cheaper markets like China., Hong Kong, South Korea and Thailand.

“Since there has been no pre-budget rally this year, a good budget can trigger a post-budget rally,” said V K Vijayakumar, chief investment strategist at

.

The total selling in the cash market in January so far has touched Rs 41,656 crore.

VIX
The major selling seen last week brought in high volatility in the market and saw the ‘fear gauge’ India VIX hitting a 3-month high of 18.0125 points on Friday.

Given that major events are lined up in the coming week, volatility could be on the higher side initially and later cool off.

“The volatility is on the higher side before the event (Budget) and it drops lower as the budget unfolds. Option traders must look for adopting an intraday short straddle or short strangle strategy to take benefit of falling VIX. As volatility cools down, we may see a sharp fall in option prices,” said Apurva Sheth, head of market perspective at SAMCO Securities.

Technical factors
Even though the week gone by was truncated, it was a brutal one for the bulls.

Renewed selling for three consecutive sessions saw the Nifty 50 breach key support of 17750-17775 levels.

“We are witnessing Doji formations in Nifty 50 and the range is getting narrower which could be a hint of upcoming momentum on either side,” said Mehul Kothari, AVP – technical research at Anand Rathi Services.

“The breakdown has a shape that resembles a bearish flag pattern and if this pattern works then we might see targets of 17200–17000 in the coming few weeks,” Kothari said.

The pattern will get negated only if the index moves above 18200 points. Thus the view is clear that till the time 18200 is not taken out, it will be a “sell on rise’ market.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)