In the past week ending August 11, the market underwent its third consecutive correction, despite trading within the range set the previous week. The decision by the Reserve Bank of India (RBI) to increase its full-year inflation projection has heightened the possibility of further adjustments in the rate-cut trajectory, extending into the fiscal year 2025. The market sentiment faced downward pressure due to the announcement of a 10 percent incremental Cash Reserve Ratio (CRR) for banks, lackluster global cues, and ongoing foreign institutional investor (FII) outflows.
As the upcoming week approaches, market participants are likely to react to industrial production data for June on Monday. The overall trend is expected to continue focusing on monthly Consumer Price Index (CPI) and Wholesale Price Index (WPI) inflation numbers, as well as the release of Federal Open Market Committee (FOMC) minutes.
In recent market movements, the BSE Sensex experienced a nearly 400-point drop to 65,323, and the Nifty50 declined by 89 points to 19,428. While banking, financial services, and FMCG stocks suffered, technology, metal, oil & gas, pharma, and select auto stocks witnessed buying activity, limiting the downward trend.
Inflation Concerns
Rising inflation concerns have drawn attention to the Consumer Price Index (CPI) data for July, due on August 14. It is anticipated to surpass the RBI's 6 percent threshold, driven by elevated vegetable prices, compared to 4.81 percent in June. The RBI has already revised its inflation forecast for the current financial year to 5.4 percent from 5.1 percent and has raised the projections for Q2 and Q3FY24 quarters.
The Wholesale Price Index (WPI) inflation for July will also be disclosed on the same day. Moreover, the Balance of Trade data for July is scheduled for release on August 15, and foreign exchange reserves for the week ending August 11 will be reported on August 18.
Global Factors
On the global front, investors are closely eyeing the upcoming release of FOMC meeting minutes on August 16. These minutes may provide insights into the rationale behind the Federal Reserve's decision to raise the fed funds rate by 25 basis points in July, hinting at a potential additional rate hike later in the year.
Furthermore, global traders are paying attention to US retail sales data, China's retail sales and industrial production figures for July, and monthly inflation data from Europe, the United Kingdom, and Japan.
Currency and FII Flow
The movement of the Indian rupee remains a point of concern, having depreciated to nearly 83 against the dollar and closing at 82.85 on Friday—a weekly record low. Factors such as higher oil prices, FII outflows, and cautious global risk sentiment have contributed to this decline. The sentiment was further affected by Moody's review and downgrade of several US banks.
Foreign Institutional Investors (FIIs) have played a pivotal role in the recent correction of Indian equity markets, remaining net sellers since late July. If this selling trend continues, experts suggest potential further downturns in the coming weeks. In the past week, FIIs sold Rs 4,700 crore worth of shares, making them net sellers on a monthly basis (over Rs 7,500 crore) for the first time in August. However, domestic institutional investors have partially offset this by purchasing shares worth Rs 2,224 crore.
Oil Prices and Technical Outlook
Oil prices have experienced a seventh consecutive week of increases, driven by tightening supply and record demand forecasts. Brent crude futures rose to $86.81 a barrel, marking a 0.66 percent rise during the week. The sustained rise in oil prices poses a risk for oil-importing countries like India, although experts predict a potential technical correction before any further rally.
From a technical standpoint, the Nifty50 formed a bearish candlestick pattern with a minor upper shadow on the weekly scale. It has been making lower highs for three consecutive weeks but largely traded within the previous week's range. The Nifty50 found support at an upward sloping support trendline on a closing basis, a crucial level to watch. A break below this trendline could lead to further support levels at 19,300-19,000, followed by 18,850-18,900. On the upside, a critical hurdle is expected around 19,650-19,700.
Options and Volatility
In the options market, maximum Call open interest is observed at the 19,600 strike, followed by the 19,500 strike. Call writing is notable at the 19,500 and 19,800 strikes. On the Put side, the highest open interest is at the 19,400 strike, followed by the 19,500 strike, with writing at the 19,400 and 19,300 strikes. This data suggests a potential trading range of 19,300-19,600 with support and resistance levels for the Nifty in the upcoming days.
The Nifty's maximum pain point, indicating the level at which most options will expire worthless, is currently at 19,500. This level could be a popular choice for a short straddle strategy in the coming week. A short straddle involves selling both a Call and a Put at the same strike and expiry date.
IPO Activity
The primary market continues to be active, with Pyramid Technoplast, a polymer-based molded products maker, launching a Rs 153-crore public issue on August 18. TVS Supply Chain Solutions will conclude its Rs 880-crore IPO on August 14. Additionally, SBFC Finance and Concord Biotech are scheduled to make their market debut on August 16 and August 18, respectively.
In the SME segment, Shoora Designs will open its Rs 2-crore issue for subscription on August 17. Bondada Engineering and Crop Life Science will launch their IPOs on August 18. Shelter Pharma's offer will close on August 14, while Yudiz Solutions, Sangani Hospitals, and Srivari Spices and Foods are set to debut on the NSE SME on August 17 and 18.
