Week Ahead: Consolidation

After a four-day consolidation, the market gained strength in the later part of the week, hitting a record high of 9,377.10 (on bad loans reforms, ICICI Bank's earnings, new steel policy and status quo by US Federal Reserve) but those gains were also wiped out in the last session due to profit-booking and a sharp fall in commodities prices. Overall it was a rangebound week for the Nifty that lost 0.2 percent to end below 9,300 level.

The coming week is expected to see some more consolidation with minor correction as investors await French elections on May 7, more corporate earnings and macro data next week.

Experts feel the market is currently highly valued and seems to have priced in a likely recovery in corporate earnings and economy.

Valuations of Nifty stocks are at 22.2 times trailing twelve months P/E, the market does not appear cheap, Jimeet Modi, CEO of SAMCO Securities says.

It could head for a large correction if 9,000 gets broken on the downside as it is a very important level placed since the start of the up-move from January 2017, he feels.

The level of 9200 may act as a key support in the May series while the highest call base for this series is placed at 9500 strike with 5.3 million shares which is likely to act as an immediate target for Nifty, according to the research house.

Here are nine factors that will chart market direction next week:

Earnings

We will be in a fifth week of earnings season next week. Earnings so far are stable to positive, indicating the beginning of recovery. Experts expect faster earnings recovery in FY18.

Bharti Airtel, Hero Motocorp, HCL Technologies, Dr Reddy's Labs, ABB India, Bharti Infratel, Siemens, Zee Entertainment, Asian Paints, Glenmark and Titan are the important earnings to watch out for during the week.

Macro Data

Consumer price index or retail inflation (rural/urban/combined) for the month of April and industrial output (measured by index of industrial production) for March will be announced on May 12.

CPI inflation in March had increased to 3.81 percent compared with 3.65 percent in previous month while industrial output contracted 1.2 percent in February (hitting a four-month low) against 1.99 percent growth in February 2016, due to fall in the manufacturing sector.

Technical Outlook

Technical experts think the Nifty has strong support level at 9,000. If it breaks that support level then they expect a major correction in the market.

Money Flows

FIIs had resumed their liking for emerging markets as the risk on sentiment kicked-off post the 1st round verdict of French elections. However, they preferred to invest in South Korea and Taiwan as these markets were adversely impacted by geo-political tensions.

IPO and Listing

The Rs 1,200-crore IPO of Housing and Urban Development Corporation (HUDCO) will open for subscription on May 8, with a price band of Rs 56-60 per share.

Majority of brokerage houses recommended subscribing the issue with a long term view.

Textbook publisher S Chand and Company will list its equity shares on May 9. The listing is likely to be at good premium as the issue oversubscribed 59.5 times.

Global Cues

Coming Monday, globally markets will react to second round of French elections that to be held on May 7. According to media reports, Centrist Emmanuel Macron, who is in favour of keeping French in European Union, is likely to defeat National Front's Marine Le Pen.

US jobs data for April month announced on last Friday was much better-than-expected while unemployment rate also improved to 4.4 (the lowest in 10 years) from 4.5.

Bank of Japan will announce its policy on May 11.

China CPI inflation for April month is expected to announce on May 10 while US April core PPI will be announced on May 11. Europe's March industrial production and US' April core CPI are expected on May 12.