In the previous week, Nifty50 and Sensex ended with losses of over 1 per cent with banks leading the weakness in the market. Analysts are concerned that another day of loss on Monday could spark a deeper correction in the market.
That said, here are the major factors that can move the market:
Keep an eye on government bonds
The multiple auction failure in the domestic bond market amid an ongoing tussle between bond traders and the Reserve Bank of India is making equity investors nervous too. Bond traders believe that 10-year benchmark bond yields should be much higher than where it is, given rising inflation concerns and growth expectations, but the central bank appears adamant to pin yields at 6 per cent. With the RBI set to conduct an operation switch in the coming week, things are only going to get interesting from hereon.
Global bond yields surging
Rising global bond yields and real interest rates in the US were seen as the reason for the tepid activity in equities in the previous week. Valuations watchers will keep a hawk eye on the US 10-year treasury yield, which is threatening to break higher amid inflation concerns. Rising US bond yields are bad news for emerging markets as it makes them less attractive for foreign investors.
Fed Chief Powell’s Congress testimony
US Federal Reserve Chief Jerome Powell’s testimony to Congress on Tuesday will be keenly watched by global investors. What Powell says about economic recovery and the Fed’s stance on policy amid surging US Treasury yields will provide cues on how the central bank is likely to behave in the coming months. If Powell does not view the rising bond yields as worrisome, it could ease concerns that the Fed will be forced to normalise easy monetary policy a lot earlier than stated.
F&O expiry
The expiry of the February derivatives series on Thursday will be critical in forming traders’ expectations for March as recent addition of short positions in the February contract of Nifty50 have raised concerns of a likely deeper correction. Derivative analysts said that rollovers are likely to be on the long-side suggesting that any weakness could be limited.
GDP data for the December quarter
While the data released by the government for GDP on Friday will be dated given that the advance estimates for 2020-21 were released in the Budget, however, investors will watch out for it to gauge if the economy returned to growth trajectory in the quarter as was widely accepted. Economists expect the year-on-year GDP growth to turn positive after contraction in the previous two quarters.
RBI MPC minutes
Amid the ongoing debate over bond yields, the minutes of the central bank’s recent Monetary Policy Committee meeting has gained much importance. While the MPC’s statement had said risk on inflation was largely balanced, it will be important to see how individual members view the inflation trajectory. The panel’s views on normalisation of policy stance on both interest rates and liquidity will also pique investors’ interest.
Technical set-up
Analysts suggested that the reading on the Nifty50 charts did not make for an optimistic reading for this week. “The index has made a bearish engulfing candlestick pattern which indicates price rejection at higher levels. The bulls are getting tired as the index is trading much higher than its mean levels,” said Nirali Shah of SAMCO Securities.
Shah believes that the market could see a brief corrective dip and said that sustained losses below 15,050 on Nifty50 can trigger some more profit booking.