Markets Next Week: Crude Oil, Rupee Movement Crucial

It was a roller-coaster ride for the markets this week, with the Sensex finally showing weekly gains of 1.04 per cent. This was largely on the back of a stellar rally in the markets on Friday, in which the Sensex gained 700 plus points and the Nifty 236 points.

Volatility has become immense, since the start of the month. What is worrying is the fact that Foreign Portfolio Investors have not stopped selling Indian equities. For the month of Oct, their net sales in the cash market has been a huge Rs 18,857 crores.

If they continue to net sell in the next few weeks, we might see the index falling, given that domestic institutions may not have the capacity to with stand the onslaught on an ongoing basis.

Rupee and crude oil hold the key

The trend of the last few weeks has been very simple. As soon as we see the rupee falling, the markets too fall. On Friday, the rupee gained remarkably against the US dollar and we saw a 700 point rally on the indices.

Clearly, if the rupee gains, we would see markets recover and vice versa. This week's marginal gains in the markets can also be attributed to the fact that crude oil prices dropped on Friday. So, the Indian markets jumped on account of the rising rupee and falling crude prices.

Earnings would be the key

Going into the next few weeks, earnings would be the key to market momentum. On Friday, Hindustan Unilever reported a good set of numbers and the stock may react positively on Monday. TCS too reported a decent set of numbers, but, the stock fell on Friday on account of gains in the rupee.

Eagerly awaited would be some of the banking numbers, since this has one of the highest weightage in the Sensex and the Nifty. We expect some banks like Punjab National Bank to perform well in the coming quarters.

The one good thing for the markets are that valuations have reached reasonable levels, if not cheap levels. The IL&FS fiasco also has been taken care of. Should foreign portfolio investors stop selling, we could see some positive reaction in the market. However, one can expect some volatility in the markets until December, when election resuts to key states like Rajasthan, Madhya Pradesh and Chattisgarh are announced.

The best strategy would be to buy the dips. Those with a long term perspective may now finally get to buy stocks at reasonable prices, which was not possible a few months ago.