21 May Rs 2,000 Bank Notes Recall to Fed Minutes – Top Factors to drive Dalal Street this week

Dalal Street Week Ahead: Key Factors that will drive the Market

The Indian stock market is anticipated to experience volatility due to several factors.

Firstly, the market will react to the Reserve Bank of India’s decision to recall ₹2000 banknotes, which could influence investor sentiment. Additionally, the release of quarterly results by numerous companies will likely impact individual stock prices.

Furthermore, investors will closely monitor the minutes of the US Federal Reserve’s meeting, as well as discussions surrounding the raising of the debt ceiling in the US.

Last Week

-On Friday, the Indian stock market experienced a positive trend after a three-day losing streak.

-The NSE Nifty index recorded a gain of 73 points, closing at 18,203 levels, while the BSE Sensex rose by 297 points, ending at 61,729.

-Additionally, the Bank Nifty index saw an increase of 217 points, finishing at 43,969 levels. However, it’s worth noting that the small-cap and mid-cap indices ended the day lower.

This Week

-Volatility is expected to grip the Indian stock market as investors react to the recent decision by the Reserve Bank of India (RBI) to recall Rs 2,000 banknotes.

-This development, coupled with several other key factors, will shape the trading strategy of investors in the coming week.

RBI’s Decision to Recall Rs 2,000 Banknotes:

The recent announcement by the RBI regarding the recall of Rs 2,000 banknotes has triggered uncertainty among investors.

The move aims to combat counterfeiting and black money circulation, but its implications on liquidity and investor sentiment may create volatility in the stock market.

Here are some Keypoints

What is the introduction of ₹2000 banknotes?

The ₹2000 denomination banknote was introduced in November 2016 under Section 24(1) of RBI Act, 1934 to meet the currency requirement of the economy after the withdrawal of ₹500 and ₹1000 banknotes.

Why was the printing of ₹2000 banknotes stopped?

The printing of ₹2000 banknotes was halted in 2018-19 after an adequate supply of other denominations became available.

Why has the Reserve Bank of India decided to withdraw ₹2000 banknotes?

-The Reserve Bank of India (RBI) follows a “Clean Note Policy” to maintain the integrity and quality of currency in circulation. In line with this policy, the RBI has made the decision to withdraw the ₹2000 denomination banknotes from circulation while still considering them legal tender.

-Approximately 89% of the ₹2000 denomination banknotes were issued prior to March 2017 and have reached their estimated lifespan of 4-5 years.

-As of March 31, 2023, the total value of these banknotes in circulation has decreased from ₹6.73 lakh crore (37.3% of Notes in Circulation) to ₹3.62 lakh crore (10.8% of Notes in Circulation).

-Moreover, the ₹2000 banknote is not commonly used for transactions.

Quarterly Results of Companies:

Several major companies in the Nifty 50, including

-Bharat Petroleum Corp,
-Hindalco Industries,
-Grasim Industries,
-Sun Pharmaceutical Industries,
-Oil and Natural Gas Corp, and
-Mahindra & Mahindra,

will be releasing their quarterly and annual financial results.

-Divi’s Laboratories has already reported its numbers on Saturday, and the stock’s reaction to the financial results can be expected on Monday. The company recorded a significant 64% year-on-year decline in consolidated net profit for the March quarter, amounting to Rs 321 crore. Revenue also saw a decline of 22.5% YoY, reaching Rs 1,951 crore.

The release of these financial numbers, along with Divi’s Laboratories’ results, is likely to have an impact on the respective company’s stock prices and could influence market sentiment as well.

US Federal Reserve Meeting Minutes:

-On Wednesday, the US Federal Reserve will release the minutes of its recent meeting, providing insights into the discussions and decisions made during the gathering.

-The Federal Reserve has implemented a 25 basis point increase in the federal funds rate.

-Additionally, the central bank has hinted at a potential pause in rate hikes.

Discussions on US Debt Ceiling:

-Investors globally are closely monitoring the ongoing negotiations concerning the debt ceiling in the US.

-If a deal is not reached, there is a possibility of the US defaulting on its debt, which currently exceeds $31 trillion.

-Last week, Treasury Secretary Janet Yellen issued a warning about the potential repercussions on the US and other markets if the debt ceiling is not raised before the June deadline.

The outcome of these negotiations and the decision regarding the debt ceiling will have significant implications for the financial markets and investor sentiment.

Expiry of the May Derivative Series:

-On Thursday, the May derivative series is set to expire, which is expected to introduce some volatility into the market.

-The series began with strong momentum, driven by consistent buying from foreign institutional investors. If there are no unexpected developments on the global front, it is anticipated that the Nifty 50 may conclude the series on a positive note.

Market participants will closely monitor the expiry of the derivative series and assess its impact on market movements.

FII Action:

-Since March, FIIs have injected an impressive $6 billion into the market, with a particular emphasis on the banking and financial services sector.

-This preference is fueled by the strong earnings reported by lenders and the optimistic growth outlook.

-According to NSDL data, the weight of banking, financial services, and insurance (BFSI) stocks in the portfolio of foreign investors reached a 26-month high of 34.2% in April.

As a result, the actions of Foreign Portfolio Investors (FPIs) will be closely monitored by investors on Dalal Street.

The Technicals:

Nifty 50 Signals Potential Correction as Key Support Level Nears

-The recent correction in the Nifty 50 has resulted in three consecutive days of downward movement, bringing the index close to its key support level.

-The index closed at 18,203.40 points on Friday, registering a slight 0.4% gain but remaining in proximity to the support level.

According to Ashwin Ramani, an analyst at SAMCO Securities, a higher close on the daily chart is crucial to indicate a potential end to the correction. Without confirmation of a higher close, the correction is likely to continue, highlighting the significance of monitoring the daily closing price of the Nifty 50.

The immediate support level for the Nifty 50, as identified by Ramani, stands at 18,050 points. If the index breaches this level, it may trigger further downward movement. A break below 18,050 could potentially lead the Nifty 50 towards the 17,800 level, signaling a deeper correction in the market.

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