Week Ahead: Q2 earnings, US election results, IPO action, FII activity, US Fed policy, among key market triggers

The Indian stock market faced selling pressure throughout October as bears tightened their grip on D-Street amid weak global cues and rising volatility. The challenges compelled the frontline indices to enter the bear market just a few days before Diwali 2024. However, the Muhurat Trading session, which kicked off Vikram Samvat 2081, drove the stock market into a festive cheer.

In the first week of November, investors will closely monitor key market triggers, including the next set of July-September quarter results for fiscal 2024-25 (Q2FY25), US Presidential election results, US Fed interest rate decision, Middle-East geopolitical tensions, foreign fund outflows, crude oil prices, global cues, domestic and global macroeconomic data.

Domestic equity benchmarks Sensex and Nifty 50 snapped a four-month winning streak in October and logged their worst monthly performance since the COVID-induced lockdown in March 2020, hurt by record-high monthly foreign outflows and lacklustre corporate earnings. The MSCI India index snapped a record 11-month winning streak, while mid-caps briefly entered correction territory.

In October, the BSE benchmark index fell sharply by 4,910.72 points, or 5.82 per cent, and the Nifty tumbled 1,605.5 points, or 6.22 per cent. The indices lost six per cent in October, their worst monthly performance since the COVID-19 lockdowns spurred a sharp slide across global markets. The indices gained around 15 per cent in the last four months.

Auto and consumer stocks fell 13 per cent and 10 per cent respectively in October and were among the biggest monthly losers, hurt by weak quarterly earnings by key constituents like Maruti Suzuki and Hindustan Unilever and worries over the demand outlook. The broader, more domestically focussed small- and mid-caps dropped three per cent and 6.7 per cent, respectively, in October.

In terms of losses, the IT index shed about 3.7 per cent in October, due to losses on Thursday, compared to a 6.2 per cent drop in the Nifty 50. The volatility index spiked about 22 per cent in October to 15.55, its sharpest monthly rise since a 91 per cent jump in May ahead of the outcome of general elections and a 30 per cent rise in February 2022 when Russia invaded Ukraine.

Stock markets experienced range-bound consolidation last week. They showed significant volatility but ultimately ended slightly higher, marking a pause in the four-week losing streak. The benchmark indices began the week positively and tried to build on those gains, but global weakness and disappointing earnings capped the upside.

Despite the choppy conditions, certain sectors, particularly metals, realty, and banking, displayed strength, while IT underperformed with a nearly four per cent drop after weeks of robust performance. Broader indices, however, outpaced the benchmarks, with the small-cap index gaining over five per cent, providing some relief to market participants.

India VIX, or the India Volatility Index, rose by (+8.68 per cent) and closed the week at 15.90. A recovery in core infrastructure output data for September, which moved out of negative territory in the previous month, supported infra and capital goods stocks. PSU banks also saw some buying interest at lower levels.

On a positive note, since last Diwali, the Nifty 50 index has risen about 24 per cent up to the last close, aided by policy continuity, stable macroeconomic and corporate growth outlook and rising retail investor participation.

The Diwali special one-hour trading session on Friday provided a boost, helping both the Nifty and Sensex finish in the green, closing at 24,304.30 and 79,724.12, respectively. The gains in Indian stocks were in keeping with history as indexes have advanced in eight of the past 10 Diwali-day sessions.

During the Samvat year 2080, which ended on Thursday, the BSE Sensex jumped 14,484.38 points, or 22.31 per cent, and the Nifty climbed 4,780 points, or 24.60 per cent. Investors' wealth rose by ₹124.42 lakh crore during the period to ₹4,44,71,429.92 crore.

“The domestic market exhibited initial signs of a positive reversal this week, coinciding with the festive season. This upward trend was bolstered by sustained healthy inflows from domestic institutions and a decline in oil prices. Market sentiment was further enhanced by expectations of easing tensions in the Middle East and improving India-China relations,” said Vinod Nair, Head of Research, Geojit Financial Services.

However, the recovery was short-lived as bearish sentiments prevailed due to concerns over sluggish corporate commentary and potential earnings cuts. “Slower government spending in H1FY25 was noted; although a pickup is anticipated in H2, overall growth for the year will be moderate,” added Nair.

This week, the primary market will witness intense action as a group of new initial public offerings (IPO) and important listings are slated across the mainboard and small and medium enterprises (SME) segments. The week will be critical from the domestic and technical point of view as investors will track corporate results, global markets and macroeconomic data.
 

Here are the key triggers for stock markets in the coming week:

Q2 Results

Investors' focus will remain on the ongoing result season, as several index heavyweights, such as Titan, Dr Reddy’s, Tata Steel, Power Grid, Apollo Hospital, M&M, Trent, SBI, Tata Motors, Asian Paint, and Divis Labs, are set to announce their quarterly results next week.

“The quarter results were impacted due to a tepid demand environment and margin pressure, which dragged FMCG, metal, auto, and realty the most. While IT remained relatively flat and contributed less to the overall losses in expectation of a pickup in BFSI spending and a favourable outlook in US spending,” said Vinod Nair of Geojit Financial Services.

5 new IPOs, 1 listing to hit D-Street

In the mainboard segment, four new public issues, including Swiggy IPO will open next week, while one new issue in the SME segment will open for subscription. Among listings, shares of Afcons Infrastructure will get listed on stock exchanges BSE, NSE on November 4.

FII Activity

Foreign Institutional Investors (FIIs) continued their selling spree, offloading around ₹14,000 crore last week. This marked October as a record month for FII outflows in the secondary market, totalling ₹1.2 lakh crore. However, Domestic Institutional Investors (DIIs) countered this selling pressure by purchasing approximately ₹1.07 lakh crore.

"Aggressive selling by FIIs due to a tactical shift to China has impacted the domestic market appeal, which was already affected by weak corporate earnings and premium valuations. Any reversal in FIIs’ stance will require an improvement in domestic corporate earnings and the attainment of fair valuations," said Vinod Nair of Geojit Financial Services.

Foreign portfolio investors (FPIs) extended their robust selling streak in the Indian market, with the sell-off hitting a record high in October amid ongoing geopolitical tensions and cheaper valuations in the Chinese stock market.

FPIs offloaded ₹94,017 crore worth of Indian equities, and the net outflow stood at ₹96,358 crore as of October 31, considering debt, hybrid, debt-VRR, and equities. October's FPI outflow hit a 10-month high, the highest sell-off from the Indian market YTD. In October, the total debt investment was reduced to ₹100 crore.

Global Cues: US Presidential Election Results, US Fed Policy Verdict

Investor attention will also be on developments in US markets in the upcoming week. The week is poised to be eventful on the global front. The US Presidential election on November 5 is a key focus, and the US Federal Reserve meeting on November 7 will be crucial.

According to Santosh Meena, Head of Research, Swastika Investmart Ltd, a 25 basis point rate cut in the US Fed meeting is anticipated. However, the commentary on economic conditions amid mixed macro data will be closely watched.

The market outlook will be guided by the US Presidential Election results on November 5 and major macroeconomic data such as the US Fed Interest Rate Decision, US S&P Global Composite PMI (October), US S&P Global Services PMI (October), and BoE Interest Rate Decision (November).

Additionally, China is expected to announce a stimulus package post-election, which could significantly influence Indian markets. Geopolitical tensions and oil price movements will remain key variables as well.

"The core PCE Price Index, which excludes volatile food and energy prices, increased 2.7 per cent in (September) period, matching August's rise and coming in above the market forecast of 2.6 per cent. The US added 12,000 jobs last month, as compared to 2,23,000, which was way short in comparison to the previous month, which can put pressure on the Fed to reduce interest rates in the US Fed meeting, which will be held next week," said Palka Arora Chopra, Director of Master Capital Services Ltd.

Oil Prices

International crude oil prices edged up in the previous session on reports that Iran was preparing a retaliatory strike on Israel from Iraq in the coming days. Still, a record US crude output weighed oil prices ahead of the US elections and the US Federal Reserve meeting verdict in the coming week.

Brent futures were up 29 cents, or 0.4 per cent, to settle at $73.10 a barrel. US West Texas Intermediate (WTI) crude gained 23 cents, or 0.3 per cent, to settle at $69.49. Both benchmarks were up over $2 a barrel at their session highs. Brent posted a weekly decline of about four per cent, with WTI down about three per cent. Back home, crude oil futures last settled 2.71 per cent higher at ₹5,981 per barrel on the multi-commodity exchange (MCX).

Corporate Action

Shares of several major companies will trade ex-dividend in the coming week, starting from Monday, November 4, such as Dabur India, Coal India, Hindustan Unilever Ltd, Patanjali Foods, among others. Some companies have also announced corporate actions such as share buybacks, bonus issues, and stock splits. Check full list here

Technical View

According to D-Street experts, the Nifty 50 continues to consolidate within the 24,000-24,500 range, and a breakout on either side is expected to determine the next direction. “An upward breakout past 24,500 could see the index target the 24,800 mark. At the same time, a break below the lower boundary may undermine recovery efforts, potentially taking the index down to 23,500, aligning with the 200-day exponential moving average (DEMA),” said Ajit Mishra – SVP, Research, Religare Broking.

According to Mishra, given the mixed sectoral trends, traders are advised to adopt a stock-specific and balanced strategy to navigate the current market environment. “Above 24,500, resistance looms at the 24,650 clusters of the 200 and 100-DMAs, which could trigger a short-covering rally if surpassed,” said Santosh Meena of Swastika Investmart Ltd.

According to Palka Arora Chopra of Master Capital Services Ltd, “The market remains under pressure, suggesting a cautious stance. The strategy remains to sell on any rise until a decisive breakout above resistance confirms a bullish reversal. Traders should watch for these key levels, focusing on risk management amid ongoing market volatility.”

Bank Nifty displayed strength this week, closing with a 1.75 per cent gain and finding support near the 51,000 level. A breakdown below this support could increase selling pressure, potentially pulling the index down toward 50,500. On the upside, buying interest will likely emerge only above the 51,800 level, which may take the index toward the 52,300 level.

“Until then, the market may remain range-bound between 51,000 and 52,300. Given this setup, the strategy adopts a “sell on rise” approach, focusing on shorting near resistance levels. Traders should stay alert for a breakout or breakdown from this range to confirm further directional movement,” added Chopra.

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.