GDP data, RBI policy among 8 factors that will steer market next week

NEW DELHI: Domestic equity benchmarks ended a highly volatile week on a positive note with Sensex and Nifty closing higher by 0.7 per cent each.

The enthusiasm after the clear political mandate in favour of Narendra Modi, translated into fresh foreign capital inflows. A sustained fall in crude oil prices also augured well for Indian market. However, weak global sentiment played the spoilsport, which induced volatility and capped gains.

“Enthusiasm continued post NDA government’s impressive victory on increased hopes of continued and speedy reform implementation and revival in growth. Further, a meaningful correction in crude oil prices, which fell nearly 7 per cent during the week, also boosted sentiment. However, uncertain global cues induced volatility and restricted further upside,” said Jayant Manglik, President, Religare Broking.

The coming week has a major event in form of RBI's monetary policy meet, which may make the market nervous. Besides, macro numbers, global cues and the movement of crude oil prices will also have their say in the market.

"With enthusiasm over BJP’s majority win having subsided, the market would track macros and global developments, especially the progress in US-China trade talks and movement of crude oil prices. Indices are likely to exhibit high volatility," said Manglik.

The coming week is a truncated one as market will be closed on Wednesday on account of Id-Ul-Fitr.

Let's take a look at the factors that will impact the market in the week ahead:

RBI's monetary policy review
The six-member monetary policy committee of RBI will decide on policy rate on Thursday in its second bi-monthly policy meet of the financial year 2020. The market is expecting another rate cut after NDA's victory in the general election while fourth quarter GDP numbers showed the economy was in a slowdown mode.

"Post a thumping victory by the BJP-led NDA government, the hopes of a rate cut has definitely increased. However, we believe that the RBI would await more data on monsoon progress and inflation. Moreover, the focus of the MPC would be to ensure that the recent rate cuts are passed on by the banks," Manglik said. If rates are slashed, bank, auto and realty stocks may see a rally.

Macroeconomic numbers
India's fourth quarter GDP data was released post market hours on Friday, which showed economy growing at 5.8 per cent in January-March period, its slowest pace in 17 quarters. The subdued numbers may infuse some bearish sentiment in the market.

Another set of government data showed that India’s infrastructure output grew 2.6 per cent in April from a year earlier. Meanwhile, the government has met the fiscal deficit target of 3.4 per cent of GDP for FY19, after sharply cutting spending towards the end of the financial year as revenue fell short of estimates. Moreover, India's Nikkei India Manufacturing PMI and Services PMI are scheduled to be released on Monday and Wednesday, respectively. All these numbers may be on the radar of market participants.

FPI inflows
Barring the outflow in the first half of May, the recent trend shows FPIs have reaffirmed faith in Indian equities. As per available data with NSDL, FPIs pumped Rs 11,295 crore into Indian debt and equity markets in May. Last Friday, when the market ended lower, FPIs still remained net buyers at Rs 676.15 crore, NSE data showed. If the trend sustains, the market may scale fresh all-time high levels.

Global sentiment
The US-China trade war is spilling over into other countries after the US President Donald Trump threatened to impose fresh tariffs on Mexico, which investors say would weigh on an already crippled economic growth. Other than the trade war jitters, markets across the world will keep an eye on several macroeconomic numbers. Among them, the manufacturing PMI of US, Japan and China are important.

ECB policy decision
The interest rate decision of the European Central Bank (ECB) will be revealed on Thursday. While ECB is expected to stick to its dovish tone, the new economic forecasts will be a key thing to watch. Market observers are expecting details on another round of TLTRO loans. As per Reuters, with the growth outlook weak, because of trade wars, Brexit and weak PMIs, generous TLTRO terms would be a sure-fire way to help.

Crude's course
Trade war jitters, after the US President threatened tariffs on Mexico, dragged crude oil prices over 3 per cent lower on Friday, causing to post its biggest monthly drop in six months. Falling crude prices is a boon for the Indian economy as it reduces the pressure on India's fiscal health. Domestic bourses may see some gains if crude remains bearish.

Auto stocks to be in focus
Auto stocks are expected to be in focus as domestic automobile companies have begun releasing their sales numbers for May. India’s largest carmaker, Maruti Suzuki on Saturday reported a decline in domestic sales across segments. Sales were down 23.1 per cent to 125,552 units in May 2019. Tata Motors Saturday reported a 26 per cent decline in domestic sales to 40,155 units in May, while Mahindra & Mahindra said its May auto sales stood at 43,056 units against 43,818 units during May 2018.

Technical barometer
Nifty on Friday formed a small bullish candle on the daily chart, with a slightly long lower wick, suggesting that the bulls were not ready to give in yet.

However, on a weekly scale, the index ended up forming a small bullish candle with a slightly longer upper shadow, which is a cause of concern, said Mazhar Mohammad of Chartviewindia.in.

“On Monday, if Nifty fails to sustain above 11,900 on a closing basis, it can trigger significant weakness, which will be confirmed with a breach of 11,829. To prevent such a situation, the index needs to break above 12,041. Traders are advised to avoid buying the dip, unless a breakout is registered,” Mohammad said.