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This week the stock market is likely to be volatile with a bearish bias.
The expiry of November futures and options contracts will add more volatility. There is also expectation in the Street that the market might see some bounce back, given the oversold situation.
But with scepticism ruling quite high on the Street, it would be very difficult for the market to stage any meaningful recovery.
The NSE volatility index hit a month high last week. It closed at 26.58 on Friday.
India VIX depicts the expected market volatility over the next 30 calendar days. Higher the India VIX values, higher the expected volatility.
Developments on the global front, particularly from the Euro region, will continue to be the trigger for our markets. Fitch Ratings had warned that unless the Euro-zone debt crisis is resolved soon, the US banks' broad credit outlook could worsen.
Foreign institutional investors turned aggressive sellers in the domestic market last week due to uncertainty in the Euro region. The weakening of rupee is also threatening the domestic growth. Indian rupee last week plunged to 32-month low of sub-51 level against the dollar. FIIs' selling will continue if the rupee continues its downward spiral.
The September quarter financial performance by Indian Inc has also let down the equity markets, as most companies failed to meet market expectation.
A BNP Paribas note said: “Our Sensex EPS estimates for FY12-13 have declined 11-12 per cent since the beginning of the year, largely on back of IT, financials, engineering and construction (E&C), autos and metals. Given the better-than-expected 2QFY12 margins and earnings performance, we believe our FY-12 earnings' estimates have largely bottomed.”
According to Anand Rathi, “Overall in the quarter there have been downgrades in recommendations and estimates due to the current concerns and it is expected that this scenario will be continued for next quarter as well until there is any major change of policy or reform and improvement in the manufacturing activity.”
However, BNP Paribas analysts said: “The improved outlook for several sectors, including IT (rupee depreciation), consumer staples (better volumes and margins) and autos (better two-wheeler sales), largely offsets the expected earnings downside for banks (higher credit costs). However, there appears to be 2-3 per cent downside risk to FY-13 earnings estimates, primarily from banks (higher credit costs), metals (lower volumes and commodity prices), E&C (execution slippages) and selected autos (lower volumes).”
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