December quarter earnings, geopolitical tensions in West Asia and crude oil price movement are among the key factors that would steer the domestic stock market in the week ahead.

Globally, markets saw some pain on Friday amid the flareup in West Asia after a US strike killed an Iranian general.

“In the short term, the likelihood of an escalation of US-Iran tension will add volatility to crude prices, impacting market performance,” said Vinod Nair, Head of Research at Geojit Financial Services.

The earnings season kicks off on Friday with Infosys announcing its December quarter numbers.

Here are the key factors that may guide the market through the week ahead:-

Q3 earnings: Infy, DMart

Traders will track third quarter earnings as the season kicks off next week with Infosys and Avenue Supermarts coming out with their numbers. Analysts are not very hopeful, as the slowdown in factory output and core sector growth are pointing at a tepid results season. Among other companies post earnings during the week would be Emami Paper Mills and GTPL Hathway.

West Asia tensions

Simmering tension in West Asia could come to a boil if Iran retaliates against the US killing of one of its top generals in an air strike. Major equity markets across the world, which traded at record levels, slipped into the red following the news. The bears could continue to hammer the market in case there is a fallout.

Third round of ‘Operation Twist’

The Reserve Bank of India will on Monday carry pit a special simultaneous open market operation (OMO) to buy and sell government bonds worth Rs 10,000 crore each on January 6. The action could further lower the benchmark bond yield, which has already seen a cut of around 20 basis points since the announcement of the first OMO.

Amfi reclassification

The half-yearly rejig of categorisation of stocks into largecaps, midcaps and smallcaps by the Association of Mutual Funds in India (Amfi) could induce volatility in certain quarters, as fund managers will have to adjust their portfolios accordingly. Adani Transmission, Info Edge, Kansai Nerolac Paints, Muthoot Finance and REC have been marked as largecaps, while Cadila Healthcare, Indiabulls Housing Finance, New India Assurance, Vodafone Idea and YES Bank were moved to the list of midcaps.

Crude oil prices

Marketmen will also track crude oil prices that saw dramatic moves on Friday with Brent crude futures leaping as much as 4.5 per cent to $69.20 a barrel, the highest level since Saudi crude facilities were attacked in September. International crude oil prices are highly linked to India’s fiscal math, as it imports over 80 per cent of its oil needs. A further rise in oil prices can hit the fiscal deficit target of the government, which is already under stress.

Rupee-dollar equation

On Friday, the rupee plunged 42 paise to settle at a one-and-a-half-month low of 71.80 against the US currency following the US attack on Iranin top soldier. Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities, said a spike in crude oil prices is making importers buy US dollars to hedge net outflows for crude buying. IT and pharma companies with international focus will see volatile movement if the rupee slides further.

US-China trade deal

Though with fresh geopolitical tensions in West Asia, the trade deal has taken a backseat, it continues to be one of the factors affecting equity markets. Both countries have shown willingness to sign the deal very soon, though they are yet to decide on a date.

Rs 102 crore infra booster

The roadmap for a Rs 102 crore infra booster announced by the government last week could continue to be a factor influencing the market this week as well. “The government thrust on driving growth and investments will lead to outperformance in the cyclical sectors,” said Vinod Nair.

Tech View: Bearish signs

On Friday, Nifty formed a bearish candle on the daily chart. Overall, the index kicked off the session in the red following tensions in West Asia. Thereafter, it remained in the downward trajectory throughout the day as sporadic recovery attempts didn’t help much. “No specific formations occurred on the daily chart. It was just a black body candle,” Nagaraj Shetti, Technical Research Analyst at HDFC Securities, said, adding that Friday’s candle pattern was placed beside Thursday’s long bull candle. “Technically, this indicates a rangebound movement ahead for Nifty,” he said.

Buildup to the Budget

With the Union Budget just weeks away, Dalal Street will track every data points and sound bytes coming out of the government to speculate and interpret possible Budget measures. There is already much talk about a possible income-tax cut, which if it materialises, can send the consumer stocks soaring.

IIP data

Traders will also be awaiting for the index of industrial production (IIP) data for November, which is scheduled to be released on January 10, 2020. Industrial output in India dropped 3.8 per cent from a year earlier in October 2019, following a 4.3 per cent contraction in the previous month and compared with market expectations of a 5 per cent fall.

Crucial meetings

The telecom sector will remain in focus in the coming week as the Department of Telecommunications (DoT) will meet Finance Minister Nirmala Sitharaman with the wish-list of the debt-ridden telecom industry. Besides, Revenue Secretary Ajay Bhushan Pandey will hold a day-long meeting on January 7 with tax commissioners to discuss ways for streamlining the GST systems and plugging leakages.

Other macro data to watch

Market participants would be eyeing the release of the IHS Markit India Services PMI for December, to be released on January 06. On the global front, investors will be eyeing a slew of economic data from the world’s largest economy US, starting with Markit Composite PMI Final and Markit Services PMI Final on January 06, followed by Balance of Trade, Redbook, Factory Orders, Exports, Imports on January 07, Jobless Claims, Consumer Credit Change on January 09 and finally Wholesale Inventories and Baker Hughes Oil Rig Count on January 11.

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