Sensex rejig, RBI OMO, F&O expiry to steer Dalal Street

After a weeklong rally that lifted Nifty and Sensex past the psychologically important 12,250 and 41,600 levels, Dalal Street awaits the final week of the calendar with a reshuffle in Sensex constituents, December series F&O expiry and a year-end slowdown in inflows from foreign institutional investors likely to be key guiding factors.

Marketmen will also seek clarity on the US-China trade deal, which was key force behind last week’s surge. The week ahead will be a truncated one as markets will remain closed for Christmas on December 25.

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

Sensex rejig: Capital rotation
From Monday onwards, YES Bank, Tata Motors, Tata Motors DVR and Vedanta will move out of Sensex with Nestle India, Titan and UltraTech replacing them. With this reshuffle, the Sensex will have 30 constituents, instead of 31 earlier. The reshuffle will likely trigger some sudden price changes in the above-mentioned stocks, as fund managers, especially of ETFs and index funds that track Sensex, will have to alter portfolios as per the changes.

Some changes are also going to be effected in a host of other indices like BSE Sensex Next50, BSE500, BSE100, BSE200, BSE150 Midcap index, BSE250 Smallcap index, BSE250 LargeMidcap index, BSE400 MidSmallcap index, BSE100 Largecap TMC, BSE Sensex 50 TMC, BSE Sensex Next 50 TMC, BSE Carbonex and BSE 100 ESG indices from Monday. Some NSE indices like Nifty500, Nifty Smallcap 250 and Nifty MidSmallcap 400 indices will see partial recast with new additions and deletions from December 26. However, these changes are unlikely trigger any major movements.

RBI' Op Twist OMO
On Monday, December 23, the Reserve Bank of India (RBI) will simultaneously purchase and sell government securities under a special Open Market Operation (OMO) for Rs 10,000 crore each on December 23, 2019, in what has come to be known as Operation Twist. The announcement of the same has already brought down bold yields substantially, helping bank stocks to rally. Market is going to watch Monday's operation keenly.

F&O expiry: Volatility likely
Traders can expect volatility next week as the December series futures and options (F&O) contracts expire on Thursday, December 26. In the current series, the benchmark indices hit record highs. BSE barometer Sensex has added 1.3 per cent till now for the month while the 50-share Nifty advanced 0.99 per cent.


FII inflow: Pause ahead
Traders will continue to trace inflows from foreign institutional investors (FIIs), who have been bullish in recent days. Since the US and China agreed to a trade deal and Boris Johnson won the ‘Brexit Election’ in the UK on December 13, FIIs have poured Rs 5,007.40 crore into Indian equities, according to NSE data. In December so far, the total FII flows stand at Rs 1,163 crore.

Tech view: Nifty charts indecisive
Nifty gained for the fourth straight session on Friday, but formed an indecisive ‘Doji’ candle on the daily technical chart. Analysts, such as Nagaraj Shetti of HDFC Securities, said such a formation in a sideways index range does not offer any significant predictive signal. Other analysts said there are signs of exhaustion in the index, and the NSE barometer could face stiff resistance in the 12,300-350 range after the recent rally.

“The formation of a Head & Shoulder pattern is still intact in Nifty as per the daily timeframe chart. The neckline of this pattern is in the 11,880-900 range. A sustainable move below this area could open up the market to sharp weakness in the days ahead,” he said.


Details of US-China trade deal
Lack of clarity on the contours of the Phase One of US-China deal remain a matter of concern for traders. The market rallied last week on the news that both the countries have finally found some resolution to their trade tussle but lack of clarity on the deal continues to keep markets edgy.

Sharp rise in Forex reserves
India's forex reserves increased by 5% during the second half of the financial year ended September 2019. They jumped to $433.70 billion as of September against $412.87 in March. This is likely to help sentiment in currency market. Foreign exchange reserves in India averaged $228.46 billion from 1998 until 2019, reaching an all-time high of $453 billion in December of 2019 after hitting a record low of $29 billion in September of 1998.

Global cues: Eyes on the US
On the global front, investors would be eyeing the release of key macro-economic data from the US, starting from Chicago Fed National Activity Index on December 23, followed by Durable Goods Orders, Redbook on December 24, MBA 30-Year Mortgage Rate, Jobless Claims on December 26 and finally EIA Crude Oil Stocks Change and Baker Hughes Oil Rig Count on December 27.


Crude oil gives up gains
Oil prices came down significantly last week after a spike in the wake of the Opec production cuts and the US-China trade deal. But the market now realizes that Opec’s latest production cuts may not support the prices in the long term. There are projections that US oil production will increase in 2020. Plus, there is a lot of uncertainties in the market surrounding the US-China trade deal. Oil prices fell on Friday, but both benchmarks logged a third straight weekly gain. Brent crude futures settled at $66.14 a barrel, down 40 cents, or 0.6%, but marked a weekly rise of around 1.4%. US West Texas Intermediate crude futures settled at $60.44 a barrel, falling 40 cents, or 1.21%, while gaining about 0.6% on the week.

Investors go into holiday mode
Markets in a number of countries across the world will be closed for much of the week for Christmas. Brazil, Germany, Switzerland and a few others will be closed on December 24 while the US, UK and other European markets will close early. Almost all markets across the world will be closed for trading on December 25. A number of markets, including the US, the UK, France, Germany, Australia and Hong Kong, will observe holiday on December 26 as well for Boxing Day.