Global macroeconomic headwinds would keep the trading sentiment subdued this week. The euro/dollar movement and yields on sovereign bonds would be watched closely. Each week, we see Euro zone countries trying to raise capital through debt offerings. The street would keep an eye on these and earnings of some large companies that are part of the US Dow Jones Industrial Average.

In India, we had Infosys disappoint with the guidance for FY 12. The company indicated that gains in December 2011 were mainly due to the rupee fall. The business environment in the future quarters continues to be challenging.

A slew of earnings would be watched by the street this week. These include TCS and HCL Tech on Tuesday followed by HDFC Bank, Bajaj Auto and Hero MotoCorp on Thursday and Reliance Industries, ITC, Wipro and Axis Bank on Friday.

Last week saw the Nifty make “Higher tops & Higher Bottoms” which technically means we could see some upside on the Index.

Last week’s range for the Nifty was between 4695-4899 and we could test 4975-5025 on the upside.

The upside would be capped due to underperformance from heavyweights like Reliance & Infy ,& the results of Reliance & TCS would dictate the Nifty trend.

Historically, the second half of January has more often seen a sharp sell-off. This is unlikely to happen this year due to the Reserve Bank of India credit policy meeting on the 24 January. The street anticipates a cut in interest rate which could come in the form of a reduction in the cash reserve ratio or CRR.

Mid-cap shares outperformed large caps. While benchmark indices like NSE Nifty and BSE sensex rose 5 per cent, the BSE Mid-cap and Small Cap indices gained 8.7 per cent and 11 per cent respectively. This week, we could see some profit booking in the midcap pack.

The options data also suggests a huge build up on the 4900 call & 4800 put, indicating the range to be between 4670 & 5000 for the week ahead. The outperformers of last week, namely midcaps in Infra/reality/banks/sugar & metals could see some profit taking, which would be healthy for the markets.

Factors To Watch:

* Results of major Nifty companies with TCS/Reliance being key for further Nifty trend.

* Rupee movement/Inflation data on Monday/10 yr bond yields

* The fallout of the S&P downgrade of 9 European countries

* Performance of the broad market and whether it holds on to gains

(Sanjeev Bhasin is an independent investment advisor based in New Delhi and an expert on NDTV Profit’s daily show ‘Buy or Sell’).