Volatility to remain high in coming week, on Monday will react to US inflation data which is at 40 years high and industrial output data for April which released on Friday. Market halted a three-week winning streak and fell more than 2% in the last week as inflation risk, growth concerns, crude oil prices, and FII selling spoiled market sentiment. Now markets are over sold and close to the bottom and good opportunities are available at attractive prices. Nifty tanked 2.3% in past week while Bank Nifty tanked 2.2% in past week. Smallcap corrected 2.8% and Midcap corrected 1.6%. Market will keep an eye on Fed interest rate decision and CPI inflation data in next week.
We expect the CPI inflation reading to be around 7.3% for the month of May, against 7.79% in April month which was highest in last 8 years. Inflation data for the month of May and June will be important for RBI for taking repo rate action in August policy meeting. CPI inflation data will be released on June 13 and WPI inflation will be announced on June 14, markets will closely analyse whether the import duty restrictions and rate hikes have had a positive impact on the inflation numbers. FOMC will hold its two-day meeting next week on June 14-15, which is expected to be crucial, especially after the higher-than-expected inflation in May at 40-year high of 8.6%. US bond yields at 3.16% against 2.94%, and US dollar index at 104.23 against 102.16 on week-on-week basis which clearly indicated that inflation is yet to peak out. Hence Fed’s aggressiveness with respect to rate hikes in second half of this calendar year, adding the expected 50 bps rate hike in June policy meeting already discounted by the market but market will closely watch Jerome Powell’s commentary.
Crude oil prices remained around $120/bbl last week, which is way above the assumption of $105/bbl made by the RBI for its full-year inflation projections. This is a crucial factor for India which could be one factor restricting upside in the equity markets for several months now. But fear of recession and lockdown in China to curb Covid crisis may pressure oil prices to some extent. FIIs were net sellers over Rs12,662cr just five trading sessions whereas DIIs have managed to compensate the outflow to some extent by buying Rs 9,611 crore. FIIs have been net sellers from last eighth consecutive month sold equities more than Rs 3.45 lakh crore while DIIs bought equities worth Rs 2.63 lakh crore.
CPI inflation data will be released on June 13
WPI inflation will be announced on June 14
FOMC two-day meeting on June 14-15
Crude Oil Price
Nifty formed bearish candle formation on the daily as well as weekly charts with closing above 16,200 mark, as soon as Nifty sustains above 16,440 level then recovery can be seen towards 16,730. While important support is placed at 16,185 to 15,950 which is base for markets and resistance is placed at 16,440 to 17,640 levels. Maximum Put Open Interest is at 16,000 followed by 16,200 and Maximum Call Open Interest is at 17,000 followed by 16,500, this shows Nifty may stay in range of 16,000 to 17,000. India VIX came down to 19.58 from high of 21.05, which is the only relief for market but bulls will get confidence when VIX will go below 18.
The article is written by Gaurav Bora, Market Expert.