F&O expiry, Q3 earnings to dictate trend on D-Street

China growth concerns, crude oil plunge drag markets lower for the third straight week

Indian equity markets are likely to be volatile ahead of the expiry of January 2015 derivative contracts while the next batch of third quarter earnings from large corporates will also dictate the trend.

Benchmark stock indices marked their third straight week of decline as concerns over slowdown in Chinese economy and the precipitous drop in international crude oil prices cast a gloom on world financial markets.

However, global markets rebounded later during the week when European Central Bank Chief Mario Draghi hinted at injection of stimulus into the European economy and oil prices staged a recovery.

For the week ended January 22, the S&P BSE Sensex suffered modest losses with a fall of 19 points or 0.08% to end at 24,436. The Nifty50 dropped 15 points or 0.2% to settle at 7,422. The broader markets underperformed the benchmarks. The BSE Midcap and Small-cap indices fell by 1.45% and 1.71% respectively.

According to Jayant Manglik, President, Retail Distribution, Religare Securities, "Nifty made a strong comeback on Friday and closed up by nearly two percent; thanks to firm global cues and strength in rupee against the US dollar. The way Nifty closed on Friday; we expect rebound to continue in the coming trades as well with immediate hurdle at 7550 mark."

He, however, added, "Stocks especially in the Midcap and Smallcap space will remain volatile so traders should uphold cautious approach with strict risk management rules."

RUPEE

Falling in line with the local stock markets, the Indian currency also suffered losses. The Indian rupee during the week breached the 68-mark against the American currency for the first time since September 4, 2013. The fall in the rupee is attributed mainly to devaluation of Chinese Yuan, relentless drop in the oil prices, and the outflow of capital by the Foreign Institutional Investor.

The BIG DROP

During the week, the crude oil prices crashed below $27/barrel, lowest since 2003 on persistent worries of slowing demand. Further, the addition of Iranian oil after its international sanctions were lifted over the weekend added woes to the supply glut. However, crude oil prices staged a recovery later in the week with both the Nymex and Brent crude quoting above $30 a barrel as severe cold weather conditions in the US and Europe boosted demand.

ECONOMIC EVENTS

The major contributor to the fall in stock markets worldwide was the slowdown in China's economy, which grew at 6.8% in the fourth quarter. It was the weakest pace of expansion since the first quarter of 2009. The world’s second largest economy’s growth rate slowed to a 25-year low of 6.9% in 2015 thus sending shivers across the world.

Meanwhile, the International Monetary Fund (IMF) in its latest World Economic Outlook cut global economic growth forecast for 2016 and 2017. According to IMF, global growth for 2016 is seen at 3.4% and 3.6% in 2017. However, reasserting the confidence in India, the IMF retained India’s growth forecast at 7.3% for 2016 and 7.5% for 2017.

Back home, India's merchandise exports declined for the thirteenth consecutive month in December 2015. Exports plummeted by 14.7% to $22.30 billion in December 2015 year-on-year.

However, the ECB Chief’s comments about further stimulus boosted sentiments across the globe.

RESULTS IMPACT

Index heavyweight Reliance Industries (RIL) plunged 6.45% and emerged as the biggest loser from the Sensex pack amid profit taking after global crude oil prices rebounded. However, in third quarter, RIL's consolidated net profit jumped 38.7% to Rs 7290 crore on 23.9% decline in revenue to Rs 73341 crore in Q3 December 2015 y-o-y. However, robust demand growth and sourcing of advantageous crude helped boost refining margins, RIL said in a statement.

On the flip side, Axis Bank zoomed 13.5% and was the biggest gainer for the week after the bank reported good Q3 result. The bank's net profit increased by 14.5% to Rs 2175.30 crore on 14.66% rise in total income to Rs 12531.11 crore in Q3 December 2015 y-oy.

Wipro gained 1% after the company's consolidated net profit rose 2% to Rs 2230 crore on 7% growth in gross revenue to Rs 12860 crore in Q3 December 2015 over Q3 December 2014. The result met the Street’s expectations.

A weak show by its cigarettes business was the key pressure point in ITC’s December  quarter results. Both revenues and net profit came in below street estimates. Revenues grew 2.6 per cent y-o-y to Rs 9,177 crore, way below the Bloomberg consensus estimate of Rs 9,451 crore. Net profit growth was flat at 0.7 per cent y-o-y to Rs 2,653 crore missing estimates of Rs 2,756 crore. The stock ended down 1.6%.

THE WEEK AHEAD

Prominent companies from the Sensex pack such as HDFC twins, Maruti Suzuki, ICICI Bank, Bharti Airtel, NTPC, and L&T will announce their December quarter results during the week.

Markets are expected to remain volatile for the week as traders roll over the positions in derivatives segment from January to February series.

Key events such as monetary policy meet of the Federal Open Market Committee (FOMC) and the Bank of Japan will be held next week.

The Indian markets will remain closed on Tuesday, January 26, 2016 on account of Republic Day.