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Market Outlook for the Week: Q3 Earnings, Ayodhya Event, F& O Expiry, and Global Factors in Focus

Market Analysis:
As the third week of the year unfolds, investors brace for a multitude of market triggers, including Q3FY24 results, the impact of the Ayodhya temple event, and global cues. Despite last week’s turbulence marked by the worst weekly losses in over two months, experts anticipate continued volatility due to derivative contract expiries and the ongoing earnings season. The Nifty 50 is expected to remain range-bound with a negative bias in the holiday-shortened week.

Key Market Developments:
Last week saw benchmark indices experiencing significant losses, primarily driven by mixed earnings and global uncertainties. HDFC Bank’s substantial fall triggered a sharp decline in both Nifty 50 and Bank Nifty, resulting in their largest single-day percentage loss since June 2022. While the NSE Nifty 50 managed to close slightly higher on Friday, both benchmarks recorded weekly losses of 1.24% and 1.22%, respectively.

Sectoral Impact:
Banking, realty, and financial sectors bore the brunt of the market downturn, while energy and IT managed to end the week in positive territory. Despite broader indices outperforming, concerns lingered over market breadth, indicating selective participation. The subdued performance was attributed to weakening global cues and elevated domestic valuations, eroding investor confidence.

Corporate Earnings:
Analysts emphasise the significance of ongoing Q3FY24 earnings, with major companies such as Colgate Palmolive, Axis Bank, L&T Finance, and others slated to announce results. While the financial sector is expected to post robust numbers, caution is advised as disappointing growth in deposits and margin contractions impact investor sentiment in the banking sector.

Ayodhya Event’s Market Impact:
The ‘Pran Pratishtha’ ceremony at Ayodhya’s Ram Mandir is set to impact stocks in the hospitality, travel, and tourism sectors, along with PSU stocks. Market experts foresee Ayodhya becoming a significant spiritual tourism destination, but caution against overvalued stocks in these segments driven by sentiment-driven rallies.

IPOs and Listings:
The primary market is set to witness a busy week with seven new IPOs and two listings across various segments. Investors are advised to closely monitor these market events for potential opportunities and risks.

Global Factors and FII Activity:
Foreign institutional investors (FIIs) turned net sellers last week amid global cues, divesting ₹22,972.66 crore. FPI activity, geopolitical developments, and policy verdicts from the ECB and BoJ are expected to influence market sentiment. Additionally, investors will closely watch US GDP growth, PMI data, and oil prices.

Technical View:
From a technical standpoint, Nifty 50 faces challenges in crossing the 21,850-22,000 zone while finding support in the 21,000-21,200 range. Bank Nifty’s structural integrity is compromised, with key support levels at 45,500 and 44,800.

Investor Recommendations:
Experts recommend maintaining a stock-specific approach and advise caution in banking stocks until there is improvement. With ongoing market uncertainties, a focus on sectors beyond banking, and selective choices in the midcap and small-cap space are suggested. Overall, a vigilant and strategic approach is encouraged in navigating the market landscape during the upcoming week.

Monika Shanmugam