Market outlook for the next week (13-May to 17-May)

14 May 2024 , 01:45 PM

HOW SECTORAL INDICES PERFORMED IN THE WEEK TO 10-MAY

What gives the best picture of how the markets are likely to pan out in the coming week. It is a look at the various sectoral returns for the previous week. In the table below, we have outlined the sectoral weekly returns of 18 key sectors (some of them are not sectors, but themes). The idea is to give as comprehensive view of the market as possible. Along with the weekly returns on each of these 18 indices, the weekly index changes are also given.

Sectoral Index	Weekly Returns	Index (10-May)	Index (03-May)
Nifty FMCG	1.85%	55,276.50	54,273.90
Nifty Metals	1.36%	22,846.90	22,541.35
Nifty Transport & Logistics	0.70%	21,820.29	21,667.93
Nifty Mobility	0.26%	19,323.56	19,272.89
Nifty IT	0.08%	32,935.15	32,908.40
Nifty India Digital	-1.43%	7,561.90	7,671.85
Nifty Healthcare	-2.42%	11,748.30	12,039.80
Nifty Infrastructure	-2.77%	8,283.30	8,519.50
Nifty Realty	-2.84%	935.35	962.65
Nifty Private Banks	-3.06%	23,550.65	24,293.10
Nifty Banks	-3.07%	47,421.10	48,923.55
Nifty Metals	-3.22%	8,977.45	9,276.30
Nifty Financial Services	-3.23%	21,094.15	21,797.40
Nifty Energy	-3.65%	39,089.45	40,571.05
Nifty Consumer Durables	-3.66%	33,216.05	34,477.55
Nifty CPSE	-3.84%	6,123.55	6,368.30
Nifty Oil & Gas	-3.89%	11,348.70	11,807.65
Nifty PSU Banks	-6.03%	7,074.35	7,528.70

Data Source: NSE

Here are some key takeaways from the tabulation of weekly sectoral returns above.

• Let us start with the macro picture for the week to 10-May. Out of the 18 key sectors, 13 sectors gave negative returns and only 5 sectors gave positive returns. The FMCG sector offered the highest returns of 1.85% for the week while the PSU Banking index fell by 6.03% for the week.
• The leading sectors were FMCG and autos, while the transport & logistics sector and the mobility sectors were modestly positive. IT sectors tended towards being flat to positive for the week to 10-May. The FMCG thrust was led by a turnaround in the rural sales in the quarter, albeit in volumes and not in value. Auto stocks delivered stellar results in the quarter amidst strong volume and price growth and lower input costs.
• On the downside, it was the unwinding in sectors that had rallied the most in the last few months. Not surprisingly, PSU bank index took it on the chin this time around, losing 6.03% during the week. Apart from PSU banks, there were 8 other sectors that lost between 3% and 4% while 3 sectors lost between 2% and 3% in the week to 10-May.

The sector story is quite eloquent on the nature and colour of the sell-off in the week. The impact was visible in the FPI selling and the correction in the indices during the week.

WEEK THAT WAS; THE GOOD, THE BAD AND THE UGLY

For the latest week to May 10, 2024, FPIs were net sellers to the tune of $2,14 Million, after relatively subdued selling in the last 3 weeks. Here are 8 key data points that influenced FPI flows in the week to 10-May.

• FPI selling was the dominant theme of the week with FPIs selling nearly $2,184 Million in the week. The domestic buying was robust but could do little to stem the fall in the markets during the week. The story appears to be essentially about hot money flowing out of India into other Asian markets with relatively better valuations. The valuation differential has become a starker in recent week as many of the Asian markets are looking very attractive at low valuations. More importantly, these would be the first markets to gain when rates start getting cut.
• It was the month when the VIX or the volatility index crossed the 20 mark and has stayed high through. The VIX nearly doubled in a span of less than 10 days and that is not a good sign. As markets panic, there is a rush to buy put options to protect. That raises the price of these options and makes them factor more of volatility risk. Clearly, the elections, the ongoing Red Sea crisis and the mixed results in the quarter have driven the VIX higher. VIX will be of interest in the coming week too.
• The Indian rupee weakened sharply in the week to ₹83.556/$ during the week and this was largely on the back of FPI outflows of $2.18 Billion in the week. This is despite the fact that the oil prices fell sharply during the week, a factor that should have actually been positive for the rupee. Also, the dollar index (DXY) was flat during the week, which should have again been positive for the markets. However, what really impacted the rupee was the sharp FPI outflows during the week.
• The index of industrial production (IIP) growth for March 2024 and for fiscal year FY24 were announced during the week. The yoy IIP for March 2024 came in lower at 4.9% compared to 5.6% in February 2024. However, the full fiscal year FY24 IIP growth stood at 5.80% compared to 5.20% in the previous year. The IIP number was disappointing as it was on a sharply lower base. However, the fall in March IIP was more on account of the sharp fall in mining activity amidst elections; while the manufacturing output and the electricity output remained robust for the month. It only came in on Friday late.
• Crude oil prices maintained a tepid tone for the second week in a row. Now, the crude prices have fallen a full 10% from the recent peaks. However, the surge in FPI outflows in recent weeks has not offered any respite to the rupee. Oil companies in India tend to gain from higher oil prices, and hence oil companies were under pressure. However, low oil prices is likely to be positive for the Indian macroeconomic health.
• Neil Kashkari of the Minneapolis Fed, underlined that rate cuts were still some time away, in a speech. He offered 3 scenarios wherein, the rates could either be static, increased, or they could be cut. According to Kashkari, the most likely scenario was that the rates would remain static for the rest of the year. However, he did not rule out the possibility of the rates being cut if inflation was supportive, although he did not see more than 2 rate cuts in a best case scenario. Rate hikes were a remote possibility but Kashkari hinted that if inflation persisted at higher levels, the Fed would have no other option than to hike rates.
• US bond yields continued to be an overhang for Indian markets. At 4.5%, the US bond yields are already at a multi-year high and is also not allowing the Indian benchmark bond yields to come down meaningfully.
• Amidst a sea of bad news, Kotak Bank had something to cheer about. JP Morgan upgraded the rating of Kotak Mahindra Bank to a BUY, with 34% upside. According to the JPM note, the stellar numbers reported by Kotak Bank in the last quarter, means that most of the downside risks of the ban on new account opening is already factored into the price. It may not change the sentiments, but should offer a support to the stock.

Among other related news in the week, SEBI ruled out extension of market trading timings. The proposal had been put up by NSE so as to allow traders to hedge their position for round-the-clock even risks. However, the two principal exchanges could not arrive at a consensus on the extension of market timings and hence SEBI has not accepted the idea.

STOCK MARKET TRIGGERS FOR COMING WEEK TO MAY 17, 2024

Here are some of the key stock market triggers for the week to May 17, 2024.

• Last week, the Nifty closed -1.87% lower, Sensex closed -1.64% lower and the Nifty Next-50 closed -2.79% lower. The generic Nifty and Sensex saw a sharp fall in the week, led by banking and oil & gas stocks. Most of the heavyweights saw aggressive selling. There was still anxiety in mid-caps and small caps with the Mid-cap index down -2.75% and the small cap index down -4.90%. These were sharp cuts indeed.
• There are some key Q4 results and FY24 results expected for companies like DLF Ltd, Zomato Ltd, Apollo Tyres, Bharti Airtel, Dixon Technologies, India Energy Exchange, Shree Cements, GAIL, JSW Steel etc. The broad story till now has been that, despite rural stress, the top line has grown, but the pressure is seen in the profit numbers. That is likely to be an overhang in the coming week.
• The late spike in the VIX to over 20 levels, will be an overhang on the markets, unless the VIX really tapers in the coming week. The VIX has been volatile in the last few weeks and the election uncertainty is only worsening the spike in the VIX. That resulted in FPI outflows for 4weeks in a row with the FPIs selling $2.18 Billion in the latest week. The FPI selling is expected to last in the coming week amidst rising US bond yields.
• After the sharp fall in the last two weeks from $90/bbl to $82/bbl, some support is likely at these levels. In the last 3 weeks, the US crude inventories have gone up substantially as the US and Canada are churning out shale at record levels. This is clearly putting pressure on oil prices and that is likely to sustain. It is also expected that OPEC would soon release more oil in the market to make the best of the robust prices. It surely would not want to lose the price leadership advantage to the US.
• In key Fed speak; Jefferson, Barr, Neil Kashkari, and Michelle Bowman are slated to speak this week. While Michelle Bowman and Jefferson are known to be hawks, even Neil Kashkari has been giving out hawkish signals in recent weeks. There is a lot of ambivalence from the Fed on the trajectory of rate cuts and, while the speeches will help, the expectation is that only the real rate cut would impress the markets.
• Finally, we focus on the key global data points for the week. Key data points from the US include FOMC member speak, consumer inflation expectations, core PPI, core CPI, Atlanta Fed GDP estimates for Q2, housing starts, initial jobless claims and Fed balance sheet. In ROW data points, we have Q1 GDP, ECB stability review, CPI Inflation (EU); GDP, Industrial Production (Japan); Industrial Production, Unemployment Rate (China); Labour Productivity, BOE Financial Stability Report, Member Speak (UK).

Let us finally turn to what all this means for the market trajectory in the coming week.

PARTING THOUGHTS ON NIFTY AND SENSEX NEXT WEEK

For the coming week, there are 3 things to watch out for, and which would determine the context for the future direction of the market.

• The big story will be the sharp volatility in the VIX, which spiked from 10 levels to 20 levels in the previous week. The markets will be looking for a sobering of the VIX levels in the coming week, and that does not look too likely now. We could see the VIX tapering only after the election outcome is known on June 04, 2024.
• Nifty supports are placed at 22,000 for the week; and break-out resistance is pegged at 22,500 levels on the upside. It is currently at the mid-point. However, the spike in VIX to above the 20 levels opens up the possibility of a sharper correction in Nifty. The Nifty is likely to hold 22,000 for now, but any signals of bullishness in the Nifty must be taken with a pinch of salt.
• What are the expectations on the Sensex? The Sensex faced strong resistance at 75,000 levels, which led to a sharp correction. For now, it looks to consolidate in the range of 72,000 to 74,000 till the outcome of the elections are known. On the downside, 70,000 offers support to the Sensex. If the Sensex is able to decisively break above 75,000 mark with volumes, then we could see higher levels like 78,000 and 80,000. That could happen only after the full budget presentation.

The coming week is a key week with respect to domestic and global data flows. They will hold the key to the market direction.