In the previous week, benchmark indices went through a much-needed correction as Nifty50 and Sensex fell over 5 per cent each led by selling from foreign investors ahead of the Budget.
Globally, too, stock markets have shown signs of fatigue after running up sharply earlier this month as investors point to the delay in rollout of COVID-19 vaccines in Western countries. There are also concerns around frothy valuations among the ongoing GameStop saga in the US market.
That said, here are some of the factors that will determine the market’s fate in this week:
Budget – will it deliver?
The Union Budget and its announcement will remain the biggest focus point for the market as investors hope that the government will deliver a pro-cyclical stimulus to further strengthen the ongoing economic recovery. Yet concerns persist amid murmurs of a likely new tax on the super rich and cess on corporate earnings to shore up the government’s coffers.
RBI Policy – view on liquidity crucial
By the time the market digests the impact of the Union Budget, RBI’s Monetary Policy Committee will come out with its last bi-monthly policy for the current financial year on Friday. While not much is expected on the interest rate front, the market will be more concerned about what the central bank has to say about domestic liquidity and its outlook on bond-buying to support government bond yields.
Q3 earnings enter home stretch
The December quarter earnings will enter the home stretch as eight more Nifty50 companies, including Housing Development Finance Corp, Mahindra & Mahindra, Bharti Airtel, Divi’s Laboratories, Hero MotoCorp , State Bank of India and others report their numbers.
Keep an eye on FIIs
The previous week’s intensity of net selling by foreign investors took many on the Street by surprise, and a below-par Budget could further accelerate profit booking from foreign portfolio investors as they look to momentarily trim their exposure to emerging markets amid concerns over vaccine rollout.
Auto sales data for Jan
Automakers will report their sales volumes data for January from Monday. Investors will keenly parse through the data for signs of further recovery in demand in the sector. Better-than-expected numbers could help ease concerns over margins that were triggered by Maruti Suzuki India’s Q3 earnings.
The Nifty50 index decidedly broke below its 50-day simple moving average on Friday for the first time since September, reflecting the extent of weakness in the market. “As markets remain deviated from the mean a little longer than usual, we may see a meaningful dip and a time correction or both in the short term going ahead,” said Nirali Shah of Samco Securities.
Macro data points
Investors will react to a slew of data points during the week with chief among them being the manufacturing PMI, services PMI and GST collections data for January. Each of the data points could provide insights on health of the economic recovery.