In the first week of June, investors will keenly eye the ongoing Lok Sabha election developments, the upcoming Monetary Policy Committee (MPC) meeting by the Reserve Bank of India (RBI), domestic and global macroeconomic indicators, auto sales figures, foreign fund inflow, crude oil prices, and global cues.
Domestic equity benchmarks Sensex and Nifty 50 experienced pressure and lost nearly two per cent amid mixed signals. The tone was negative from the start as participants were in profit-taking mode after two weeks of gains. Caution ahead of the outcome of the general election and weak global cues further dampened sentiment as the week progressed. Nifty 50 slipped below the crucial support zone of its short-term moving average (20 DEMA) and settled at 22,530.70.
The frontline indices had fallen for five straight sessions until Thursday and are down 2.4 per cent from an all-time high hit early this week amid high volatility ahead of the poll results. On a weekly basis, Sensex tanked 1,449 points while Nifty plunged by 426 points, recording their first weekly decline in three, as traders made positional adjustments ahead of exit polls and results.
All key sectors, except banking, faced challenges, with IT, energy, and FMCG being the top losers. The broader indices also declined, losing between one per cent and 1.5 per cent. Government data on Friday revealed that India has retained its crown as the world’s fastest-growing major economy in FY24.
India’s FY24 gross domestic product (GDP) grew by 8.2 per cent, while January-March quarter GDP moderated to 7.8 per cent. Apart from the exit polls, investors may show bullish sentiments after the GDP print over India’s strong macroeconomic fundamentals when markets open on Monday.
‘’Investors are adjusting their portfolios to align with fundamentally strong sectors and stocks, as robust Q4 FY24 earnings and better-than-expected Q4FY24 GDP growth will continue to provide a buffer on valuation in the medium term,” said Vinod Nair, Head of Research, Geojit Financial Services.
‘’Weak global cues have further dampened market sentiments, and higher core inflation in the Eurozone may lead the ECB to maintain the status quo on rates. The short-term direction will hinge on the general election results,” added Nair.
Also Read: Nifty 50 June series: From Bata India to IGL—4 stocks where investors can park their money; do you own?
In the coming week, the buzz in primary markets may remain subdued as only a few new initial public offerings (IPO) and listings are slated across the mainboard and small-and-medium enterprises (SME) segment. The week will be critical from the domestic and technical point of view as investors will global indicators and the latest corporate results.
Overall, analysts expect Nifty 50 to move toward the 23,000-23,400 range on the upside levels. On the downside, the index may stick to 22,400. They added that a gradual up-move is expected, however, markets may still witness some volatility this week due to the RBI monetary policy. Experts advise traders to to keep a close watch on leveraged positions and wait for more clarity.
Here are the key triggers for stock markets in the coming week:
Exit polls, Lok Sabha election results
Most of the exit polls predicted on Saturday, June 1, that BJP-led NDA may win over 350 of the 543 seats in the Lok Sabha polls, leading to a third consecutive term for Prime Minister Narendra Modi in office.
Market analysts are bullish for an upcoming rally on Monday and said that BJP’s clear victory, as predicted by exit polls, is likely to remove election-related jitters among investors. Experts called the exit polls prediction as a ‘shot in the arm’ for bulls who will trigger a big rally in the market on Monday.
The exit polls projected the ruling National Democratic Alliance (NDA) could win nearly a two-thirds majority in the 543-member lower house of the parliament, where 272 is needed for a simple majority.
‘’On June 4, the day of the election results, the Sensex and Nifty benchmarks could experience substantial movements, with both high and declines remaining on the cards,” said Arvinder Singh Nanda, Senior Vice President at Master Capital Services Ltd.
‘’The Indian market is currently trading at a premium, having largely discounted the growing likelihood of the continuation of the Modi era. Consequently, we cannot rule out the possibility of profit booking in the second half of the trading session following an initial upward movement,” added Nanda.
In case the NDA fails to form the government – probability is thin though- the market may fall 20 per cent or more and will take time to fully recover, according to Kotak Alternate Asset Managers.
RBI MPC Meeting, Auto sales
The central bank’s rate-setting monetary policy panel will begin deliberations for the second policy verdict of the current fiscal 2024-25 this week. Headed by RBI Governor Shaktikanta Das, the six-member MPC will meet for three days – from June 5-7, and the decision will be announced on Friday, June 7 at 10 am by the RBI Governor.
The RBI has kept the repo rate unchanged at 6.5 per cent since February 2023. In the run-up to the MPC decision, market volatility may persist and rate-sensitive banking stocks will be in focus throughout the week. Auto stocks will also be in focus over the release of the monthly auto sales numbers for May.
D-Street analysts and economists broadly expect the central bank to continue its current stance as in order to bring India’s inflation near its target level after the US Federal Reserve hawkish stance last month. Fed expects to ease its policy in 2024, but only after US inflation heads towards its two per cent target.
3 new IPOs, 6 listings to hit D-Street
In the mainboard segment, Kronox Lab Sciences will open for subscription on June 3. In the SME segment, Sattrix IPO and Magenta Lifecare IPO will open for bidding on June 5. Among the ongoing IPOs, Aimtron Electronics IPO and Associated Coaters IPO will close on June 3, while TBI Corn IPO will close on June 7.
Among listings, shares of Vilas Transcore will debut on NSE SME on June 3. On June 4, shares of Beacon Trusteeship and Ztech India will get listed on NSE SME. On June 6, shares of Aimtron Electronics and Associated Coaters will debut on NSE SME and BSE SME respectively. On June 7, shares of TBI Corn will get listed on NSE SME.
FII Activity
Foreign investors remained sellers in Indian equities over the outperformance of Chinese stocks, high US bond yields, weak quarterly earnings and volatility ahead of Lok Sabha election results. However, analysts noted that the selling trend may reverse dramatically when clarity emerges on the election outcome.
Foreign portfolio investors (FPIs) offloaded ₹25,586 crore worth of Indian equities last month and the total outflow stands at ₹12,911 crore as of May 31, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd data. The total debt inflows stand at ₹8,761 crore in May.
FPI’s mood in June will be heavily influenced by the election results to be announced on June 4 and the market response. If the election results ensure political stability the market is likely to respond positively to that. FPIs also are likely to turn buyers in such a scenario. However, in the medium term, US interest rates will exert more influence on FPI flows,” said Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Also Read: Why did FPIs dump ₹25,586 crore worth of Indian shares in May—Explained with 4 key reasons
Global Cues
Analysts said that the global cues have been weak as the hopes of rate cut are getting diminished with the US Federal Reserve opting for its hawkish stance for inflation to stick near target levels. US inflation tracked sideways in April, a worrying sign for the US central bank that suggests the elevated pace of price increases could last longer, raising concerns of delayed interest rate cuts
The personal consumption expenditures (PCE) price index increased 0.3 per cent last month, the Commerce Department said on Friday, matching the unrevised gain in March. The PCE price index rose 2.7 per cent year on year , after advancing 2.7 per cent in March. The data was broadly in line with Wall Street estimates.
Key indicators will be closely monitored this week, including US bond yield movement and commodity prices, including crude oil, gold, and silver, as they will influence market sentiment. Analysts said that the performance of global markets, which are currently providing mixed signals, will also be closely watched by traders.
Oil Prices, OPEC policy decision
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, are known collectively as OPEC+ will hold meeting later today to discuss their joint oil production policy. Saudi Arabia invited ministers to gather in person in Riyadh for the June meeting in a last minute change of plans. The gathering is still officially scheduled as an online meeting.
Most analysts expect that the oil producing group will extend the voluntary cuts of 2.2 million barrels per day (bpd) in order to support the market stability amid a downtrend of prices. However, brokerage firms are not bullish on crude prices this year due to an oversupply by non-OPEC nations and fading risk premium.
Ahead of Sunday’s OPEC+ policy meeting, crude oil prices dropped in the previous session and posted a weekly loss as investors awaited the verdict. Brent futures for July delivery settled lower at $81.62 a barrel, while the US West Texas Intermediate (WTI) crude futures fell 1.2 per cent at $76.99. For the week, Brent settled down 0.6 per cent, with WTI posted a one per cent loss.
Corporate Action
In the coming week, several stocks will trade ex-dividend, while some companies have also declared a buyback of shares. Stocks such as Manappuram Finance, ICICI Lombard General Insurance, Indian Bank, ITC, among others, will trade ex-dividend, while Anand Rathi will declare a buyback of shares. Check full list here
Technical View
The decline in the index has disrupted the momentum ahead of the election results, as the Nifty retraced nearly half of its recent rally from 21,821.05 to 23,110.80 and fell below the 20 DEMA. ‘’We are now trading at the lower band of a rising channel around the 22,400 level, and a decisive break here could lead to a further decline, possibly retesting the 21,800-22,000 support zone,” said Ajit Mishra – SVP, Research, Religare Broking Ltd.
In case of a recovery, the 22,900-23,400 zone would be challenging to surpass. Sector-wise, the outlook is mixed as fresh declines in IT and FMCG sectors have diminished hopes for support from the banking sector, according to the analyst.
‘’While broader indices are still near their record highs, market breadth has deteriorated, indicating selective participation. Given this scenario, we recommend keeping a close watch on leveraged positions and waiting for more clarity,” added Mishra.
Nifty needs a decisive move past the 22,700 zone to improve the bias. With the election outcome approaching, high volatility and fluctuations are expected in the coming days,” said Vikram Kasat, Head – Advisory, Prabhudas Lilladher.
The Bank Nifty is better positioned compared to the Nifty index, maintaining above the important 50EMA level of 48,000-48,300. A decisive breach above 49,000 levels is necessary to improve the bias, while 47,200 levels would be a crucial support zone for the index, according to the analyst. Sensex shows support at 73,400 and resistance at 74,400 levels.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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Published: 02 Jun 2024, 05:59 AM IST
