Key risks to watch on Dalal Street next week
As 2023 draws to a close, Indian markets face challenges such as low trading volumes, a potential increase in COVID-19 cases, and growing uncertainty in the Red Sea. The impact is evident as Indian benchmarks concluded the past week with a decline, breaking a seven-week winning streak. Last week, Sensex lost 0.52% or 376.79 points to 71,106.96, while Nifty shed 0.49% or 107.25 points to 21,349.40. On December 20, they hit fresh highs of 71,913.07 and 21,593, respectively.
Various sectors witnessed a decline in indices
The Nifty PSU Bank index experienced a 3% decline, the Nifty Media index decreased by 2%, the Nifty Auto index saw a 1.4% drop, and the Nifty Metal index lost 1%. The Nifty FMCG and Pharma indices each recorded a 1% gain. The Nifty Midcap 100 concluded with a 1% decrease, while the Nifty Smallcap 100 closed 0.27% lower. With that being said, here are a few factors that traders must watch out for next week.
Red Sea crisis impacting global trade
The Houthi rebels' support for Hamas in the Israel-Gaza conflict has led to attacks on commercial ships traveling through the Red Sea. Many companies have halted operations or re-routed vessels, causing higher freight rates as routes lengthen and volumes decrease. CNBC reported that as of December 21, approximately 158 vessels carrying over 2.1 million cargo containers worth an estimated $105 billion have been diverted from the Red Sea.
COVID-19 variant JN.1 is raising concerns
The emergence of the new JN.1 variant of COVID-19 in India has prompted the Central government to encourage states to remain vigilant and report all influenza-like and severe acute respiratory illnesses. States are advised to ensure adequate testing in all districts according to COVID-19 testing guidelines and maintain the recommended balance of RT-PCR and antigen tests. A worsening situation could potentially unsettle the markets in the future.
Oil prices have witnessed mixed responses
Ahead of the Christmas holiday, oil prices eased on Friday but increased for the week due to positive US economic news and concerns over Houthi ship attacks raising supply costs. Brent futures shed 0.4% to settle at $79.07 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped 0.5% to trade at $73.56. Both benchmarks saw an increase of approximately 3% for the week, following a gain of less than 1% in the previous week.
FIIs became net buyers in India's stock market
As geopolitical concerns are on the rise, foreign institutional investors (FIIs) sold equities worth Rs. 6,300 crore last week, while domestic institutional investors purchased Rs. 8,900 crore worth of equities. However, FIIs have still been more significant purchasers than DIIs in the cash market for this month.
Technical view and upcoming events
SBI Securities indicates that 21,050-21,100 is a crucial support for Nifty in the upcoming expiry week, with 21,430 being essential for maintaining positive momentum. In the coming week, traders will monitor bank loan growth, deposit growth, foreign exchange reserves data, and infrastructure output numbers. Additionally, several IPOs and listings are planned for the final week of 2023, keeping the primary market active.
