ITC, Asian Paints, dollar, F&O expiry and rising COVID-19 cases⁠ — 8 factors that will move stocks this week

• The benchmark Nifty50 and the Sensex registered an increase of 3.3-4% in the last week, led by a rally in banking stocks and RIL.
• The India-China border tensions kept investors on the edge, but there is an overall bullish sentiment in the market.
• Based on the June derivatives data, the Nifty50 could end up closing between 10,000-10,500 this week.

In the week ended June 19, the Indian share markets registered an increase of more than 4%. This was despite the rapid increase in COVID-19 cases and the escalating India-China tensions on the border.

The rally in Sensex and Nifty was led by banking stocks and Reliance Industries (RIL), which became net-debt free thanks to a spurt of investments in its telecom arm Jio Platforms.

A consolidation inevitably follows a market rally, and since we’re towards the end of the month, factors like expiry of June derivative contracts will also have an impact on the share market.


Top 8 factors to watch out for this week

India-China tensions at the border

The tensions at the India-China border have never been this high in decades, especially after 20 Indian and reportedly 43 Chinese soldiers were killed in action.

A lot will depend on whether both the sides honor the June 6 agreement for a peaceful resolution to the matter.

Stronger dollar

A stronger US dollar has resulted in India’s dollar bonds giving returns of just 3% in June so far, as opposed to 6.8% in May. Only two companies - Rural Electrification Corporation and UPL Ltd have issued dollar bonds this month, totaling to $1 billion. This is the lowest in two years.

A stronger dollar also makes it difficult for Indian companies to raise funds from international investors.

Expiry of June derivative contracts

June futures and options contracts are set to expire on June 25, which is the last Thursday of the month. This could lead to an increase in volatility in the market.

Based on data obtained from the NSE, the majority of the open interest in both Put and Call is between the 9,500-10,500 range. Nifty50 closed on June 19 at 10,244, and given the bullish sentiment in the market, it could very well close the week above 10,000.

Spurt in COVID-19 cases

COVID-19 cases have increased by more than 10,000 on every day of the last week, sparking concerns of a second wave. Total cases in India crossed the 4-lakh mark, meaning India is fourth in the global list now, behind USA, Brazil and Russia.

On a positive note, India’s recovery rate has crossed the 50% mark now, so this could boost the market sentiment in the coming days.

Economic recovery expectations thanks to Unlock 1.0

With different phases of Unlock 1.0 underway now, expectations of a market recovery have gained after reports suggested that the Indian government won’t impose lockdown again after June 30.

With restrictions easing further, parts of the economy that have been shut down for months will open up for the first time after the nationwide lockdown was announced on March 23.

Earnings – ITC, Asian Paints, IOC and others

Some major large cap companies, and a majority of mid-cap and small-cap companies are expected to announce their Q4 2020 earnings in the last week of June.

Some of these companies include ITC, Asian Paints, Indian Oil (IOC), Coal India, India Cements, General Insurance Corporation, IRCTC, Ashok Leyland among others.

Foreign investment flows

The ongoing India-China border tensions could remain a cause for concern, but foreign investment flows might not be affected as much.

An analysis of the FII flows during June so far reveal that the net flow has remained positive. Barring any major flare up in India-China tensions, it is likely that FII flows could increase in June when compared to May.

Oil prices

Oil prices have remained in the $38-42 range in the last two weeks. However, the Indian government has increased petrol and diesel prices by up to INR 8.88 in the last 15 days, after a 12-week freeze on hike during the lockdown.

The Brent crude futures expired at $42.19 on June 19. However, experts suggest that the increase could be subdued as the COVID-19 increase continues to dampen hopes of a global recovery.

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