Stimulus, results, derivatives to drive equity markets (Market Outlook)

Mumbai, Oct 25 (IANS) A Chinese stimulus, domestic quarterly results and a US decision on a rate hike – coupled with the expiry of derivatives – are expected to drive Indian equities markets in the weekly trade starting from October 26.

Furthermore, the value of the rupee, uncertainties surrounding the Bihar elections and stock-specific action will decide market’s trajectory in the upcoming week.

“China cut its interest rates post market (on Friday), and we expect markets to open on a positive note on Monday,” Vaibhav Agrawal, vice president, research, Angel Broking, told IANS.

In an effort to shore up the struggling economy, the Chinese’ central bank – the People’s Bank of China (PBOC) – lowered its one-year bank lending rate and reduced the reserve requirements of lenders.

This was the sixth time since November 2014 that the Chinese central bank has cut interest rates. The move is expected to lower the cost of corporate finance and pump additional liquidity in the economy, which is struggling with weak demand and excessive industrial capacity.

Notwithstanding the expectations of a positive opening, the Indian equity markets might soon come under pressure ahead of the F&O (future and options) expiry, said Aggarwal.

The US Fed will hold its FOMC meet on October 27-28. The Bank of Japan (BoJ) will conduct its monetary policy review on October 30.

The FOMC assumes significance as higher interest rates in the US are expected to lead away FPIs (Foreign Portfolio Investors) from emerging markets such as India.

Recent macro-economic data and the European Central Bank (ECB) decision against hiking interest rates at its monetary policy meet on October 22 will have some effect on the US FOMC.

Rather than hiking rates, ECB President Mario Draghi said cuts are being considered to stimulate the eurozone economy.

After the ECB meet, equity market participants here have gathered that the US Federal Reserve will refrain from raising interest rates during its monetary policy meet next week.

“There are expectations that the US Fed will refrain from hiking rates, after the ECB’s decision and the Chinese stimulus. However, investors will be anxious until the final outcome of the FOMC is revealed,” Alex Mathews, head of research with Geojit BNP Paribas Financial Services, told IANS.

On the results front, Pankaj Sharma, equities head with Equirus Securities, said that no major positive surprises should be expected as infrastructure companies start reporting their earnings figures.

“We don’t expect too many positive surprises from the earnings season and with infra companies starting to report results, the fears on delay in capex (capital expenditure) cycle recovery would be confirmed,” Sharma said.

Major firms like Maruti, TVS Motor, Axis Bank, Sesa Goa, Lupin, Dabur India, Sun TV Network, Bharat Forge, Crompton Greaves, Areva, Dr.Reddy’s, Glenmark, NTPC, ICICI Bank, Kotak Mahindra Bank, IDFC, and GSK Pharma are expected to come out with their second quarter results.

“There are no fundamental reasons for markets to do well, but liquidity may help them sustain the positive momentum,” Sharma added.

However, liquidity might not be a problem for the Indian equity markets as FPIs continue to pour in much-needed funds.

The negative investment trend of the domestic institutional investors (DIIs) may also change, reflecting healthy sentiments on account of improved global cues and better-than-expected quarterly results.

For last week, the FIIs picked up stocks worth Rs.1,602.77 crore, while the DIIs sold stocks worth Rs.895.84 crore in the Indian equity markets.

“Short-covering before the derivatives expiry might also yield in some additional liquidity in the markets,” Mathews cited.

Furthermore, volatility might flare up on account of derivatives expiry next week.

“Trend in global markets, expiry of October derivative contracts and outcome of US Fed’s two-day meet will dictate the trend on the bourses,” Gaurav Jain, director with Hem Securities, told IANS.

“Indian benchmarks are expected to remain volatile with positive bias.”

Nitasha Shankar, vice president, research, with YES Securities, told IANS: “If Nifty fails to trade beyond the upper end of the channel (8,390-levels) on higher volumes, then profit booking may resume dragging the index lower.”

“VIX (volatility index) is also suggesting a rise in volatility which could lead to minor corrections, if the index does not sustain at these higher levels.”

Both the Indian bellwether indices had made gains for the fourth straight week during the trade session that concluded on October 23. The gains have been sustained, ever since the country’s central bank eased key lending rates by 50 basis points on September 29.

The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) rose 256.31 points or 0.93 percent to 27,470.81 points from its previous weekly close at 27,214.50 points.

The wider 50-scrip Nifty of the National Stock Exchange (NSE) too made gains during the weekly trade ended October 23. It gained 57.3 points or 0.69 percent to 8,295.45 points.

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