Dalal Street Action Next Week: Bears Tighten Grip On Market, From Q2 Results To FII; Key Market Triggers?

As October draws to a close, the Indian stock market finds itself grappling with intense volatility, souring investor sentiment, and a relentless bearish trend. Global economic uncertainties, rising oil prices, Middle-East geopolitical tensions, and continuous foreign outflows have all contributed to a grim atmosphere on Dalal Street, pushing frontline indices into a bear market just days before Diwali 2024 and the beginning of Samvat 2081. The market appears on course to end Samvat 2080 in the red, adding to a gloomy outlook.

The final week of October holds a high-stakes agenda as investors look to various key market triggers. From critical quarterly results and the scheduled monthly derivatives expiry to updates on the US elections and economic data from major global players, the week is expected to be a decisive one for Indian equities. Here's a closer look at what lies ahead.

Foreign Outflows and Earnings Woes

The market's performance in October has been marked by steep declines, with benchmark indices logging their worst losing streak in over a year. The NSE Nifty 50 and BSE Sensex ended the week with substantial losses, down 2.7% and 2.24%, respectively. This marks the fourth straight week of losses for both indices. Additionally, Nifty's relative strength index (RSI) dropped below 30, slipping into oversold territory for the first time in a year.

Foreign institutional investors (FIIs) have been one of the biggest drivers of this downturn, selling off significant holdings as they turn towards cheaper valuations in other markets, notably China, where government stimulus measures have attracted investment. FIIs sold equities worth an enormous Rs 1 lakh crore in October alone. Conversely, domestic institutional investors (DIIs) bought equities worth nearly Rs 97,000 crore, attempting to counterbalance the FII outflow. However, with retail investors and high-net-worth individuals (HNIs) also showing signs of selling pressure, DIIs' efforts to support the market may only hold for so long.

Adding to the pressure, disappointing Q2 earnings results have further weighed on market sentiment. Tepid demand, margin pressures, and softer-than-expected guidance from companies have led investors to pull back, contributing to a broad-based sell-off that has seen sectors like real estate, metals, and auto bear the brunt. The broader market indices, which had shown resilience in recent weeks, plunged by 5.75% to 6.45% in October.

Major Triggers to Watch This Week

Q2 Earnings Results

As the Q2 earnings season progresses, the market will be focused on key results from major companies. On Monday, October 28, ICICI Bank, IDFC First Bank, Yes Bank, JK Cement, REC Ltd., and Coal India will be in the spotlight as they reveal their Q2 FY25 earnings. Later in the week, other prominent companies including Adani Power, Bharti Airtel, Maruti Suzuki, Dabur, and JSW Infrastructure are expected to announce their results.

Investors will particularly watch out for corporate earnings guidance, as companies face pressures from inflation, high input costs, and fluctuating consumer demand. Any optimistic outlook could provide a breather, while tepid results are likely to drag indices lower.

IPO Listings and Market Debuts

While no major IPOs are expected to open for subscription this week, several companies will make their stock market debut, which could bring some fresh action to the primary market. Among these, Waaree Energies, Deepak Builders & Engineers, and Godavari Biorefineries will list on the BSE and NSE, while five SMEs will debut on the NSE SME and BSE SME platforms.

Upcoming high-profile IPOs from Swiggy and ACME Solar Holdings are also on the horizon, although dates remain unconfirmed. The performance of these listings could indicate investor sentiment towards new offerings amid volatile market conditions.

Monthly Derivatives Expiry

October's derivatives expiry is scheduled for Thursday, a day anticipated to bring increased volatility as traders and institutions square off open positions. Derivatives expiry has historically heightened market swings, particularly when paired with other significant events like earnings announcements and macroeconomic data releases.

Foreign Investment and Global Market Cues

Foreign investment trends have shown a marked shift, with FPIs turning net sellers of Indian equities in October, leading to a net outflow of Rs 89,977 crore. The geopolitical situation in the Middle East, particularly the Israel-Palestine conflict, has intensified uncertainties and driven investors toward safer assets, further straining the already volatile market. Meanwhile, US Presidential election updates and speculation about potential rate cuts from the Federal Reserve will also be closely watched as they influence global investor sentiment.

Global Macroeconomic Data

The US is set to release crucial data this week, including its jobs report, GDP figures, and the Core PCE Price Index-considered the Federal Reserve's preferred inflation gauge. Meanwhile, the Bank of Japan's interest rate decision on October 31 will be another key event, especially as Japan's central bank remains one of the few major economies still in negative rate territory. China will also publish its PMI manufacturing data, shedding light on the health of the world's second-largest economy. Given the interconnectedness of global markets, these data points are expected to impact Indian indices significantly.

Crude Oil Price Movements

Rising oil prices have added to inflationary pressures, with Brent crude futures climbing by over 4% in the past week to settle at $76.05 per barrel. US West Texas Intermediate (WTI) crude also saw a 3.7% increase, closing at $71.78. Back in India, crude oil futures traded higher on the MCX, with prices touching Rs 6,040 per barrel, up by 2.18%.

The Middle-East crisis has created a risk premium in oil markets, as concerns over crude supply intensify. Should oil prices continue to rise, sectors heavily reliant on fuel, such as airlines and logistics, may see increased costs, potentially impacting profit margins and stock prices in these sectors.

Sector Performance and Corporate Actions

The week will also bring a series of corporate actions as several companies go ex-dividend starting October 28, including ICICI Lombard General Insurance and Infosys. Additionally, some firms have announced plans for share buybacks, bonus issues, and stock splits, which could lead to stock-specific action.

What Lies Ahead for Investors?

The Indian market is heading into its final trading sessions for Samvat 2080, facing challenges not seen in recent years. The week ahead is critical, as it combines the expiry of October derivatives, crucial corporate earnings, and numerous macroeconomic data releases that could potentially reshape the market's direction.

While the ongoing correction has raised fears of further declines, long-term investors may find value opportunities emerging as prices fall. However, given the high levels of uncertainty, experts recommend that investors stay cautious and maintain a diversified portfolio to mitigate risks.

For investors alike, the upcoming week will be one of heightened vigilance, as each of these triggers can influence market sentiment. With festive optimism tempered by current market realities, Samvat 2081 may very well begin under the shadow of the ongoing October market turmoil.