Market Ahead, Feb 1: Top factors that could guide markets this week

After a turbulent ride last week, wherein benchmark indices lost 5%, markets are expected to remain volatile in this eventful week too as the Union Budget, macro data and RBI policy would be keenly watched by investors. Besides, the ongoing quarterly earnings season would also be in focus, guiding market trajectory. 

In the last week, the BSE Sensex fell 2,593 points or 5.30 percent to 46,286 and the Nifty50 corrected 737 points or 5.13 percent to 13,635, underperforming the broader markets. Global markets, too, corrected amid concerns over slower rollout of Covid vaccine and valuation concerns. 

When the markets would open for trading today, the single biggest factor that will determine market mood is the Union Budget. Finance Minister Nirmala Sitharaman is slated to present the Budget for FY22 in the Parliament at 11 am today. This Budget is more so keenly eyed as it comes on the heels of an unprecedented pandemic that changed India's economic landscape. 

Expectations remain high that the government will deliver introduce pro-cyclical measures to further strengthen the ongoing economic recovery. However, concerns remain amid possibility of increase in taxes or cess to shore up the government’s coffers. According to a Bloomberg survey of economists, by Sitharaman will target a deficit of 5.5% of GDP next year after it likely widened to 7.25% in the current year.

That apart, one other major event this week is the RBI's bi-monthly monetary policy on February 5, Friday. While the central bank is expected to hold key rate at 4% and maintain accomodative stance, commentary on economic growth and inflation along with measures that can help economic revival would be key things to watch out for. 

A host of macro-economic data and auto sales figures are also scheduled to be released this week. On the macro data front, a record GST collection of Rs 1.19 trillion during the month of January could certainly cheer investors. Besides, participants would track the Manufacturing PMI and Services PMI data to be announced on Monday and Wednesday, respectively. Foreign exchange reserves for the week ended January 29 will be announced on Friday. Each of the data points could provide insights on health of the economic recovery.

Meanwhile, auto makers will start reporting their sales data for the month of January, starting Monday. According to brokerage Nomura, passenger vehicle sales will likely be up by 11% YoY, while medium and heavy vehicle sales are expected to grow 4% YoY. Two-wheeler sales, however, are expected to be flat YoY. 

Besides that, it will be an earnings-heavy week as 475 companies are set to post their December quarter numbers this week, with eight of them from the Nifty50 pack.  HDFC, Bharti Airtel, Hero Motocorp, HPCL, State Bank of India, Britannia Industries, Mahindra & Mahindra, Divis Labs and NTPC are among key earnings to watch out for. 

As FIIs turned net sellers in the last week, leading to a massive fall in the benchmark indices, their mood will be closely tracked by the Dalal Street. FIIs sold Rs stocks worth Rs 12,096.69 crore in the week ended January 29. Meanwhile, DIIs turned net buyers on the weekly basis for the first time in last four months, and bought equites worth Rs 3,788.98 crore last week.

Moreover, global cues and movement in crude oil prices and rupee would also influence market sentiment.

Lastly, apart from mainboard indices, action in the primary market would also remain high. Brookfield India Real Estate Trust initial public offer would open for subscription on January 3 and close on January 5. The IPO is priced at Rs 274 to Rs 275 per equity share.

And now, let's take a look at the trade setup for today.

Contrary to global market mood, benchmark indices look set to open the week on a firm note ahead of the Union Budget and auto sales figures.  At 7.40 am, Nifty futures on the Singapore Exchanged traded 20 points up at 13,740, indicating a firm-to-positive start for benchmark indices.

Globally, Asian shares were mixed amid worries that problems with vaccine rollouts combined with new strains of Covid-19 will delay a global economic recovery that has already been baked into the market’s rich valuations. Weak set of data from China also hampered the sentiment as data suggested China’s recovery -- one of the bright spots in the global economy -- is being hampered by efforts to curb Covid-19.

Japan’s Topix index rose 0.3%, South Korea’s Kospi added 0.1% while Australia’s S&P/ASX 200 Index sank 1.1%. Meanwhile, S&P 500 futures lost 0.7%.

On the stock-specific front, Castrol India, Finolex Industries, Kansai Nerolac Paints and Reliance Capital are among 37 firms set to report their December quarter numbers. 

Tata Motors on Friday reported a 67.52 per cent rise in its consolidated net profit to Rs 2,941.48 crore for the third quarter ended December 31, aided by pent-up demand amid steady recovery in the economy.

Tech Mahindra reported a 14.3 per cent jump in its December quarter net profit at Rs 1,309.8 crore driven largely by improving profit margins while the revenues remained stable.

Private sector lender IndusInd Bank reported a 37 per cent decline in its December quarter net profit at Rs 830 crore on provisions for sour loans and a negligible loan growth.

Vedanta reported a 59 per cent jump in its consolidated profit to Rs 4,224 crore for the quarter ended on December 31, 2020 against Rs 2,665 crore in the year-ago period.