Trade Setup This Week: Bulls Or Bears, What Should Be Investors Position In Stock Market From January 15-20?

After a rush of sentiments for the IT sector's Q3 earnings report, banking stocks will be in focus as financial services providers will start to announce their quarterly results in the trading week of January 15-20 with HDFC Bank in focus. Last week, Sensex and Nifty ended with nearly 1% upside each despite a subdued start.

The pace of upside this week is expected to be gradual and if profit booking is the case then Nifty could be in the range of 21,150-21,500.

Investors are recommended this week to stay focused on key sectors for stock selection amidst choppiness due to earnings season.

On Friday, last week, the Sensex and Nifty witnessed a huge rally driven by a massive buyout of IT stocks. The 30-scrip index gained by 847.27 points or 1.18% to end at 72,568.45. While the 50-scrip index surged by 247.35 points or 1.14% to end at 21,894.55. Overall, Sensex and Nifty broadly ended the week with nearly 1% upside each.

On last week's performance, Ajit Mishra, SVP - Technical Research, Religare Broking said, markets ended a 2-week long consolidation phase and settled around the week's high. Weak global cues triggered a subdued start however buying in the select heavyweights prompted some recovery in the middle. It was the buoyancy in the IT pack on Friday, which helped the index to reclaim a record high.

Consequently, Mishra added, both the benchmark indices, Nifty and Sensex, settled at 21,894.50 and 72,568.40 respectively. Meanwhile, the mixed trend continued on the sectoral front wherein IT, realty and energy were among the top performers while FMCG and banking ended lower. The broader indices also edged higher wherein the smallcap index gained over half a percent.

What to expect this week and how should traders put their positions in the stock market?

As per Mishra, apart from earnings, the performance of the US markets will remain in focus for cues.

He said, "We have been seeing consolidation in the Dow Jones Industrial Average (DJIA), with bias on the positive side. A decisive breakout above 37,800 would prompt the next leg of up to move towards 39,000 levels and the support has shifted to the 36,900-37,300 zone."

Meanwhile, Vinod Nair, Head of Research, Geojit Financial Services highlighted that contrary to expectations of weak Q3 results from the IT sector, better-than-expected results along with green shoots of recovery in the IT sector on the back of an improved outlook for BFSI in FY25 positively influenced domestic market sentiments.

With higher-than-expected US inflation and positive job data, the euphoria over early rate cuts by the US Fed has moderated, which has diminished global market sentiments, Nair said.

However, Nair also pointed out that oil prices have surged as the conflict in the Red Sea region appears to escalate further. Domestic inflation data for December was marginally lower than anticipated, while industrial production (IIP) witnessed a deceleration more than expected.

In the near term, Nair said, investors' trade positions will be more inclined towards the upcoming result season; the overall forecast for earnings growth remains optimistic, projecting double-digit figures.

Further, on the domestic market, Mishra said, "Nifty has reclaimed its record high and looks set to test 22,150 and then 22,500 however the pace of rise could be gradual due to the prevailing underperformance of banking. In case of any profit taking, the 21,150-21,500 zone would continue to act as strong support."

Thereby, Religare Broking analyst suggests investors "focus on other key sectors for stock selection." He added, "And, since the choppiness remains high during the earnings, risk management plays a critical role irrespective of the market trend and traders should plan their trades accordingly."

In the case of FPIs, so far, they have been net buyers of Indian equities with inflows of up to Rs 3,864 crore. However, FPIs liked debt instruments more than equities in the two weeks of January. Inflows in debt are up to Rs 7,912 crore as of now.

On FPIs, Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, the surge in FPI inflows during December 2023 which stood at Rs 58372 crores, slowed down in early January 2024. As per NSDL data, the total FPI investment through the stock exchanges in January up to 13th is Rs 2743 crores.

Vijayakumar added, "In December, FPIs were big buyers in financial services and also in IT. FPIs also bought in sectors like autos, capital goods, oil and gas and telecom. This trend is likely to continue, going forward."

Lastly, Geojit's strategist said, "Since 2024 is expected to witness further declines in U.S. interest rates, FPIs are likely to increase their purchases in 2024 too, particularly in the early months of 2024 in the run-up to the General elections. FPI investment in debt is likely to accelerate, going forward."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.