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The Indian stock market experienced a turbulent week, marked by a 1.4% decline in benchmark indices, primarily fueled by escalating tensions between India and Pakistan. However, a significant development occurred over the weekend – a ceasefire agreement between the two nations. This unexpected peace breakthrough is anticipated to bring a sense of relief to the markets when trading resumes on Monday. The Director General of Military Operations (DGMO) of both countries will be holding talks on Monday at 1200 hrs, further signaling a potential de-escalation of the conflict. The markets had been exhibiting nervousness for the preceding three sessions, triggered by a war-like situation following India's response to the Pahalgam attack. In response, India took decisive action by destroying terrorist infrastructure within Pakistan and Pakistan Occupied Kashmir (PoK) on Wednesday, May 7th. This action only intensified the anxieties among investors and contributed to the overall market downturn. The article notes that analysts suggest that geopolitical developments will continue to remain a critical factor to monitor, as they can exert significant influence on market sentiment and investment decisions. Specifically, the ongoing tensions with Pakistan will likely remain in the spotlight, potentially shaping market volatility and risk appetite. Investors will be closely watching for any signs of renewed escalation or further de-escalation in the coming days and weeks. This India-Pakistan tension is the primary concern that is driving investor anxiety, but other economic indicators and international market forces are also major influences on the stock market.
Beyond the geopolitical landscape, the market's trajectory will also be heavily influenced by a multitude of domestic and global economic factors. Corporate earnings reports will be a major focal point in the coming week, with over 511 companies scheduled to announce their quarterly earnings. Investors will be meticulously analyzing these reports to assess the financial performance of various sectors and individual companies, seeking insights into their profitability, growth prospects, and overall health. Some of the notable companies scheduled to release their earnings include Hero MotoCorp, Bharti Airtel, Bharti Hexacom, and Eicher Motors. The market will also closely monitor the earnings releases of Dr. Reddy’s Laboratories and Swiggy, which announced their Q4 results after market hours on Friday. Investors will also be paying close attention to key macroeconomic data releases, including the Consumer Price Index (CPI), Wholesale Price Index (WPI), and trade figures for exports and imports, which are expected to be released on Monday, May 12. These data points will provide valuable insights into the state of the Indian economy, including inflation levels, industrial activity, and trade balance. These economic indicators can significantly impact market sentiment and influence investment decisions, as they can signal potential risks or opportunities for growth. The interaction between geopolitical factors and economic indicators is complex and can create a volatile market environment, demanding a cautious and informed approach from investors.
The performance of US markets will also play a crucial role in shaping the direction of Indian markets. On Friday, Wall Street ended with declines, with the Dow 30 closing at 41,249.40, down 119.07 points or 0.29%. The S&P 500 finished 4.03 points or 0.07% lower at 5,659.91, while the Nasdaq Composite closed flat at 17,928.90. The global interconnectedness of financial markets means that fluctuations in US markets can quickly ripple through to other markets around the world. Investors in India will closely watch the performance of US markets to gauge global investor sentiment and identify potential trends that may impact the Indian market. The action of Foreign Institutional Investors (FIIs) will also be a significant determinant of market direction. On Friday, FIIs sold shares worth Rs 3,798.71 crore, while Domestic Institutional Investors (DIIs) were net buyers at Rs 7,277.74 crore. FIIs are major players in the Indian stock market, and their investment decisions can have a significant impact on market liquidity and stock prices. A net outflow of funds from FIIs can put downward pressure on the market, while a net inflow can boost market sentiment. DIIs often play a counterbalancing role, and their actions can help to stabilize the market during periods of FII selling. Rupak De, Senior Technical Analyst at LKP Securities, noted that Nifty traders appeared to embrace risk-off trades amid India-Pakistan tensions on Friday, as the index fell from its recent consolidation zone. He added that the index found support around the 21-day exponential moving average (EMA), managing to stay above the 24,000 mark.
From a technical analysis perspective, De suggested that bears may attempt to push the index decisively below 24,000 to gain the upper hand in the short term. A clear break below 23,900 could increase bearish bets in the market. On the upside, 24,250 may act as an immediate resistance level, above which sentiment could improve. The Indian rupee ended stronger on Friday, gaining 34 paise to close at 85.37 per dollar, even as military tensions between India and Pakistan intensified. The rupee appreciated from a low of 85.84 per dollar during the day amid likely intervention by the Reserve Bank of India (RBI). The one-month dollar rupee non-deliverable forwards (NDF) segment climbed to their highest in a month on Friday, according to Reuters, emphasizing offshore market participants’ concerns about rupee weakness. Anil Bhansali, head of treasury at Finrex Treasury Advisors, noted that the RBI likely did not allow a spike in the currency pair beyond 86 and ensured that the dollar-rupee stays in a band, giving importers and exporters equal opportunity to hedge. Traders expect the rupee to be in the range of 84.5/$1 to 86/$1 on Tuesday, subject to no serious escalations between India and Pakistan. Furthermore, a multitude of companies will be undergoing various corporate actions in the coming week, including record dates for dividends, demergers, and rights issues. Some of the prominent events are record dates for dividends of State Bank of India (SBI), Indian Energy Exchange (IEX), and GRSE. These corporate actions can influence stock prices and investor sentiment.
Finally, Crude oil prices remain a critical factor for the stock markets, as they have the potential to alter the inflation dynamics in a country. The US WTI oil contracts ended at $61.06, up by $1.15 or 1.92%, while Brent oil futures were hovering near $63.910, higher by $1.04 or 1.65%. Fluctuations in crude oil prices can significantly impact the cost of transportation, manufacturing, and other industries, ultimately affecting inflation rates and economic growth. The Indian government will also be publishing its Consumer Price Index (CPI), Wholesale Price Index (WPI), and trade figures for exports and imports on Monday, May 12. These macroeconomic data releases will provide further insights into the state of the Indian economy and will likely influence market sentiment and investment decisions. The interplay between these various factors – geopolitical tensions, corporate earnings, US market performance, FII/DII activity, rupee movements, corporate actions, crude oil prices, and macroeconomic data – will shape the trajectory of the Indian stock market in the coming week. Investors are advised to remain vigilant, monitor these developments closely, and make informed investment decisions based on a comprehensive understanding of the market dynamics. Cautious optimism seems appropriate, given the ceasefire agreement, but vigilance is key due to the many other factors in play.
Source: India-Pakistan ceasefire, FII action among 8 factors that could impact D-Street this week