Q3 earnings, vaccine rollout among key factors that may sway market this week

Q3 earnings, vaccine rollout among key factors that may sway market this week

MUMBAI: Benchmark stock indices are likely to consolidate their recent strong gains this week as investors may remain on the sidelines ahead of the Union Budget on February 1 and as they await further signs of global economic recovery.

Recent data points in the US have suggested that the economic recovery in the world’s largest economy is stuttering after weekly jobless claims surged for the first time since the initial months of the COVID-19 pandemic.

In addition to that, investors remain circumspect of valuations in the current frontline stocks, which are now trading well above their long-term forward valuations. The Nifty 50 index is currently available at 21 times one-year forward earnings, a significant premium to the long-term average of around 17.8 times.

That said, there are multitudes of other factors that will have a bearing on this week’s action in the market:

Vaccine rollout

As India kickstarted its COVID-19 vaccination drive on Saturday, investors will keenly observe the pace of the rollout and any development regarding serious adverse events that may raise concerns among the public over the two approved vaccines.

December quarter earnings

With five Nifty 50 companies reporting their third quarter earnings, including Bajaj Finance, JSW Steel and Bajaj Auto, investors will gauge for signs of further topline recovery and profit growth as well as management commentaries of these companies.

COVID-19 restrictions

With the German Chancellor Angela Merkel calling for stricter restrictions amid surging COVID-19 cases and parts of the US and China under some form of localised lockdowns, concerns over the pandemic’s impact on near-term economic activity are rising. Developments on this front will weigh on investor sentiment.

US stimulus package

President-elect Joseph Biden will be sworn in as the president of the US on Wednesday and has already detailed a $1.9-trillion stimulus package as part of its priority agenda. However, he needs republican help to pass it in the US Senate, and they are not so convinced by the president’s offer.

IPO season resumes

After a stellar 2020 for initial public offerings in India, Indigo Paints and Indian Railway Finance Corp will resume the IPO season in the country this week as both the issues open for public subscription.

New NBFC norms in the offing?

Reserve Bank of India Governor Shaktikanta Das said that the central bank may release its working paper on new “scale-based” regulations for non-bank finance companies. Shares of NBFCs in general, and HDFC and Bajaj Finance in particular will be in focus.

FII inflows

Inflows from overseas investors will continue to support the market and is the chief reason market participants are not concerned over the possibility of a minor correction in the market. Last week, foreign investors net bought local stocks worth Rs. 7,637 crore.

Technical Outlook

“We’ve been maintaining our positive yet cautious stance on market citing the possibility of profit-taking in markets and reiterate the same view for Monday,” said Ajit Mishra, vice president of Research at Religare Broking.

Mishra said that it will be prudent for traders to avoid naked leveraged positions for now and prefer hedged strategies. In case of a further slide, Nifty 50 index will find immediate support at 14,250 and then 14,100 zone, he added.

Macro data

All eyes will be on the Chinese GDP data for the December quarter, retail sales and industrial production data for December, and the outcome of the Bank of Japan’s monetary policy meeting on Thursday.

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