Earnings, COVID-19 cases are key for markets this week

Earnings, COVID-19 cases are key for markets this week

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Earnings, COVID cases to be key for markets

Indian equity markets snapped two-week gains and ended lower this week on account of weak global and domestic cues. For the week, Nifty50 and Sensex were down 1.2% and 0.8% respectively to close at 9,154 and 31,327. The broader market underperformed with Nifty Midcap100 and Smallcap100 down 2.7% and 3.2% respectively. Sectorally it was a mixed bag with Pharma (+3.9%), IT (+1.3%), and Energy (+1.8%) closing in green, while Metals (-9.4%) was the biggest loser, followed by Banks (-6%) and Real Estate (-5.4%). Foreign institutional investors (FIIs) sold equities more than Rs 4,000 crore this week while domestic institutional investors (DIIs) sold more than Rs 600 crore.

The global sentiments slumped as an experimental drug to treat COVID-19 showed inconclusive results and weak global data across geographies pointed towards the severe economic damage caused by the coronavirus pandemic. 

Further with immigration into the US getting temporarily suspended weakened the moods further. US crude oil futures went below zero for the first time to touch negative (-)$37.63 a barrel early this week amidst fears that the sector will run out of storage for a glut caused due to severe demand collapse. It, however, recovered to end the week at about $16.6 a barrel. Brent Crude futures also slipped below $20 a barrel.

On the domestic front, winding up of six debt schemes by Franklin Templeton MF due to redemption pressure and lack of liquidity in bond markets and the postponement of the Prime Minister-Finance Minister meeting to next week, disappointed the street. India VIX cooled down to 39-level from 46 a week ago. On the currency front, the rupee plummeted to an all-time low of 76.88 before recovering to settle at 76.45 against the US dollar.

All this while, investors were hoping on flattening coronavirus cases and the progress of a vaccine, which has not aided any positive results so far.

Attention has again shifted to the economic damage as the number of cases continues to mount and weak economic data getting announced across countries. Investors are still struggling in evaluating the impact of coronavirus pandemic on business as companies refrain from giving guidance. Going ahead, markets are likely to react to earnings, the trend in coronavirus cases, oil price, and currency movement along with global events. Any announcement from the government on the economic stimulus package could provide some interim relief.

Technically, Nifty has to cross and hold above immediate hurdle of 9300-9400 zones to extend further move towards 9600-9700 zones while on the downside support exists at 9000 then 8900 zones.

(The writer is the head of Retail Research, Motilal Oswal Financial Services)