From Q3 earnings to global trends: 5 factors to guide market this week

After hitting new record highs last Friday driven by the stellar performance of Reliance Industries and IT stocks, Indian benchmark indices are likely to extend their rally this week, but correction can't be ruled out. While the week is going to be eventful, various factors will set the tone for Dalal Street. The quarterly earnings by heavyweights such as HDFC Bank, Hindustan Unilever, L&T as well as WPI inflation data and global trends will guide the equities market this week. Among others, foreign fund flows, trends in the rupee-dollar market as well as global crude prices will also influence the stock market.

“The focus will shift towards Q3 earnings releases, with key players such as HDFC Bank, HUL, L&T Technology, L&T Mindtree, Asian Paints, Indusind Bank, and Ultratech Cement set to announce their results. Pre-budget expectations are also likely to influence sector- and stock-specific movements, adding to the market's dynamic environment,” says Santosh Meena, Head of Research, Swastika Investmart Ltd.

“From a technical standpoint, Nifty successfully breached the 21,800 resistance level, with 22,000 acting as a psychological hurdle and 22,220 identified as the next target level. On the downside, the 21,750–21,650 range constitutes the immediate demand zone, with 21,500 serving as a key support level,” adds Meena.

Last week, the BSE benchmark Sensex added 542 points, or 0.75%, to 72,568 during the week ended on January 12, 2024, and the broader NSE Nifty rose 184 points, or 0.85%, to 21,895 levels, led by strong rally in IT, realty, and Teck sectors. The market sentiment was lifted by better-than-expected Q3 numbers by IT bellwethers TCS and Infosys, as well as positive macro data. The data released by the CBDT showed that India’s net direct tax collection climbed 19.41% to ₹14.70 lakh crore so far this fiscal from the same period of last year. The positivity in the market was also injected after the World Bank’s Global Economic Prospects report indicated that India’s GDP will grow 6.3% in FY24, maintaining the fastest growth rate among the world’s largest economies.

“The earning season begins with companies reporting their December quarter results which may determine the market trajectory going forward. It is expected that the Nifty50 companies see good Q3 FY24 earnings for yet another quarter as the macro factor improves in India. Most of the companies in Nifty50 are automobile, auto ancillary, metals, capital goods, electronics and a few financial services,” says Arvinder Singh Nanda, Senior Vice President, of Master Capital Services Ltd.

Five factors that will guide the stock market this week:

Foreign fund flows

The trend in foreign fund flows will be one of the key triggers for the market. After injecting ₹66,134 crore in Indian equities in December, foreign portfolio investors (FPIs) turned cautious in the first two weeks of this month with a total divestment of ₹3,900 crore. However, domestic institutional investors were pivotal in driving the rally, with net purchases of over ₹6,800 crore.

“As the market gears up for the budget, institutional flows will play a crucial role in determining its direction. On the global front, macroeconomic data from the USA and China, along with movements in the dollar index, US bond yields, and crude oil prices, will be closely monitored. Geopolitical tensions worldwide continue to be a source of uncertainty, demanding the market's vigilant attention,” says Santosh Meena.

Corporate earnings

The corporate earnings season, which began last week with TCS and Infosys releasing their financial numbers for the December quarter, will be the biggest factor in driving the market movement. Some of the big players such as Federal Bank, HDFC Bank, Asian Paints, ICICI Pru life, IndusInd Bank, Hindustan Unilever, and Ultratech Cement are scheduled to announce their Q3 numbers this week.

Among others, Tata Communications, L&T Technology Services, South Indian Bank, Bank of Maharashtra, Shoppers Stop, Poonawalla Fincorp, Home First Finance, ICICI Prudential Life Insurance, Happiest Minds Technologies, and ICICI Lombard General Insurance will also unveil their December quarter numbers.

Meanwhile, shares of HCL Tech, Wipro, and Avenue Supermarts will be in focus today as they released their earnings over the weekend.

Global trends

Investors will also keep an eye on global market trends as they will dictate trends on the bourses this week. On Friday, Wall Street ended flat in volatile trade as mixed earnings by banking heavyweights offset cooler-than-expected inflation data. The U.S. producer prices dropped in December, raising hopes for potential interest rate cuts by the Federal Reserve. The macro data from the U.S. and China, along with movement in the dollar index, U.S. bond yields, and crude oil prices will also influence the domestic market.

Geopolitical tensions

The ongoing geopolitical tensions in the Middle East, which started in October last year after the Israel-Hamas war, will also trigger global markets. The tensions in the Red Sea region will be closely eyed after the U.S. and U.K. launched several air strikes on Iran-allied Houthi militants in Yemen on January 11. As per report, several major global tanker companies such as Hafnia, Torm and Stena Bulk have halted traffic toward the Red Sea, which may push oil prices higher. 

Macro data

The wholesale-based inflation, as measured by the Wholesale Price Index (WPI), for December will be released on January 15. The WPI inflation is expected to rise further after it increased by 0.26% in November, the highest in eight months. The WPI, which had been negative for the last seven months, rose sharply in November due to higher food prices.

Investors will also keep an eye on passenger vehicle sales and balance of trade data for December, which will be announced on January 15, while foreign exchange reserves will be released on January 19.

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