TEAM FINANCE | THE GOAN
The Indian stock market is heading into a crucial week after the benchmark indices recorded their eighth consecutive weekly decline. It is the longest losing streak in 25 years, exceeding the weak runs seen during the Covid-19 crash in 2020 and the global financial crisis of 2008.
Rising crude oil prices, higher bond yields, inflation concerns and heavy foreign selling have weighed on investor sentiment. Several factors could influence the direction of Dalal Street in the coming week.
1. Oil prices remain a concern
Crude prices remained relatively subdued during the week after European leaders agreed to US President Donald Trump's request to release diesel reserves. The move is aimed at easing fuel prices and reducing dependence on US diesel supplies.
However, uncertainty over the Middle East conflict remains high. Analysts at JPMorgan have warned that the situation has become difficult to predict, with several economic thresholds that were earlier considered unlikely having already been crossed.
The possibility of further disruption to oil supplies has also increased. Goldman Sachs said oil prices could climb to as much as $120 a barrel if attacks on shipping in the Middle East intensify. If exports return to normal, prices could fall back towards $80 a barrel.
2. RBI policy decision
The Reserve Bank of India's Monetary Policy Committee will meet from October 5 to 7 to decide on the benchmark repo rate.
Economists have brought forward expectations of a rate hike, with some now predicting a 25-basis-point increase in October instead of December.
Higher energy costs, food inflation and broader price pressures could prompt the RBI to tighten monetary policy. Bank of America expects the central bank to begin withdrawing some of its policy support after a prolonged period of monetary accommodation.
SBI Research has also said the case for a 25-basis-point hike has strengthened because of rising inflation risks, weaker global economic conditions, changing liquidity conditions and renewed volatility in global markets.
3. US bond yields add pressure
The 10-year US Treasury yield, an important indicator for global borrowing costs and asset prices, rose to 5.34%, its highest level since 2002.
Higher US yields can make American government bonds more attractive than riskier emerging-market assets such as Indian equities. This could encourage foreign investors to withdraw money from India, putting additional pressure on the rupee and stock prices.
A weaker rupee could also increase the cost of imported goods, particularly crude oil and other inputs used by Indian companies.
4. Foreign selling continues
Foreign institutional investors have sold Indian equities worth Rs 43,687 crore in just six trading sessions, with selling becoming heavier over the last three sessions.
Experts say the selling is understandable given the high US bond yields and the current global interest-rate environment.
A sustained return of foreign money may also depend on India's ability to develop globally competitive industries in areas such as semiconductors, batteries and energy storage, according to Bernstein.
5. Q2 earnings in focus
The second-quarter earnings season will also begin in earnest, with 21 companies, including TCS and DMart, scheduled to announce their results.
Investors will closely watch the numbers for signs of strength in corporate earnings despite the uncertain global environment.
For TCS, revenue growth, new deals, margins and management commentary on technology spending will be key. DMart's results will provide clues about consumer demand, sales growth and operating margins.
Any major surprise in the results could affect sentiment towards the individual stocks as well as the wider IT and consumption sectors.
6. Rupee under pressure
The Indian rupee has slipped to a two-month low as higher global bond yields and rising crude prices added to pressure on the currency. Foreign portfolio outflows have added to the weakness.
The continued volatility has also made exporters cautious about hedging their receivables, while importers continue to hedge actively. This has widened the imbalance between demand and supply in the foreign exchange market.
IFA Global has advised exporters to hedge cautiously and preferably against confirmed orders, while importers should use favourable movements in the dollar-rupee rate to manage their exposure.
Nifty technical outlook
The Nifty 50 remains in a broader corrective phase after registering its eighth straight weekly fall. The index is trading below important moving averages and continues to form lower highs and lower lows, indicating a weak technical structure.
The index fell to an intraday low of around 22,217 during the week before recovering slightly.
According to Ponmudi R, CEO of Enrich Money, the 22,500-22,600 zone is likely to act as the first resistance area. The next resistance is expected around 22,800-23,000.
A sustained move above 22,600 could bring some stability and support a recovery towards 22,800-23,000. However, the Nifty would need to regain and hold above 23,000 for a meaningful improvement in its short-term outlook.
