Market outlook for the next week (21-May to 25-May)

21 May 2024 , 08:13 AM

STORY OF SECTORAL INDICES IN THE WEEK TO 18-MAY

The 18 major sectors were a picture in contrast compared to the previous week. In the previous week, most of the sectors were in the negative with FMCG a surprising top gainer. This week, FMCG was the only sector with negative returns. To be fair, not much has changed fundamentally. Political uncertainty is real, VIX is still above 20 and valuations just got a little steeper. Inflation trudged lower, but that was all. The week saw a bit of short covering, but also fresh buying interest came back into the high beta counters.

Sectoral Index	Weekly Returns	Index (18-May)	Index (10-May)
Nifty Realty	7.43%	1,004.85	935.35
Nifty Metals	7.03%	9,608.80	8,977.45
Nifty Consumer Durables	6.07%	35,231.95	33,216.05
Nifty CPSE	5.53%	6,462.15	6,123.55
Nifty MNC	5.25%	29,035.45	27,585.85
Nifty Infrastructure	4.51%	8,656.95	8,283.30
Nifty Energy	3.44%	40,432.85	39,089.45
Nifty India Digital	3.28%	7,809.80	7,561.90
Nifty Oil & Gas	3.09%	11,699.00	11,348.70
Nifty Healthcare	2.95%	12,094.40	11,748.30
Nifty Mobility	2.76%	19,857.25	19,323.56
Nifty Logistics	2.75%	22,420.63	21,820.29
Nifty Financial Services	1.93%	21,502.15	21,094.15
Nifty Private Banks	1.78%	23,969.80	23,550.65
Nifty Banks	1.64%	48,199.50	47,421.10
Nifty IT	1.53%	33,438.75	32,935.15
Nifty PSU Banks	1.17%	7,156.80	7,074.35
Nifty FMCG	-0.11%	55,217.85	55,276.50

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, 17 sectors gave positive returns and only 1 sector gave positive returns. The FMCG sector, which led the returns last week, was the only sector offering negative returns this week. Realty and metals led with 7.43% and 7.03% returns in the week, while FMCG lagged.
• The leading sectors were obviously realty and metals, while other sectors like consumer durables, MNCs, Infrastructure, and CPSEs gave returns of over 4% in the week to 18-May. Out of the 18 sectors, a total of 12 sectors gave returns of more than 2%. The big narratives of the week were short covering and concerted buying in small and mid-cap stocks. It was the smaller stocks that actually led the markets higher.
• On the downside, there was just one sector, FMCG, that gave negative returns in the week to 17-May. Other sectors that gave below 2% returns in the week included financial services and IT services.

The sector story was quite positive for the week. It was an extended week with 6 days of trading, with a mini-trading session on Saturday. The election outcome will be known on June 04, 2024; but another crucial data point before that would be the exit polls that will be conducted on the evening of June 01, 2024. For now, it is wait and watch!

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

For the latest week to May 18, 2024, FPIs were net sellers to the tune of $1.34 Billion, lower than the previous week, which saw FPI net selling of $2.18 Billion. Here are 7 key data points that influenced FPI flows in the week to 18-May.

• The week was once again dominated by debates over the political events in India and the high levels of the VIX (volatility index). The VIX has now been above 20 for more than 2 weeks, but first about the political uncertainty. After what looked like a third clear mandate for the ruling NDA, it now looks like the results could be closer. At least, that is what the market grapevine is leading us to believe. We will know the real picture only when we get the exit polls outcome and the final results on June 04, 2024. Fow now, the political uncertainty is keeping VIX at elevated levels. For the week, the VIX continued to remain above the 20 levels, which is normally a level where FPIs prefer to sell in a worst-case scenario and stay out in a best-case scenario. VIX has been one of the primary factors driving FPI outflows for fifth week in a row.
• The week saw MOSPI announce the India CPI inflation for April 2024, which came in marginally lower at 4.83%. It was 4.85% in the previous month, so you can say that it was almost flat. However, what would disturb the analysts is that the food inflation was actually 18 bps higher in April at 8.70% compared to 8.52% in March 2024. Most of the pressure on food prices came from the core food basket comprising of cereals, pulses, and vegetables. Core inflation has remained subdued but there are worries that fuel prices would be hiked post-elections triggering higher fuel inflation.
• Crude prices bounced from $82/bbl to nearly $84/bbl during the week. This was not a sharp spike, but it looks like crude oil has taken a temporary support around the $80/bbl levels. For India, this situation is still manageable, as it is over $90/bbl that the macro challenges start to surface. For the week to May 17, 2024, the US oil inventories saw a drawdown after 3 weeks of inventory accretion and that contributed to the bounce in crude oil prices. Red Sea crisis continues to post challenges to
• Talking of the Red Sea challenges, the impact was visible on Indian exports for the month of April 2024. The week saw the merchandise and services trade data announced by the Ministry of Commerce. While merchandise imports grew by 10.25%, the merchandise exports grew by just 1.09%; an obvious outcome of the Red Sea disruptions. However, the good news is that the services surplus continues to be robust and India should end FY25 with the current account deficit (CAD) at 1.25% of GDP. This is likely to be higher than the 1% CAD that India is expected to report for FY24, when the CAD data is put out by the RBI on the last day of June 2024.
• For the month of April 2024, the US consumer inflation, on YOY basis, came in 10 bps lower at 3.4%. The MOM inflation also tapered to 0.3%. However, this comes on the back of a sharp rally in inflation, so the CME Fedwatch is unlikely to be impressed. Currently, the US inflation is 140 bps away from the 2% target, so it is unclear whether the rate cuts can really start from September 2024, as the CME Fedwatch is suggesting.
• In other data points having a bearing on the FPI flows, the USDINR gained some strength during the week as it closed around 83.30/$, after staying above 83.50/$ for better part of the previous week. While FPI flows continue to be negative, the steady oil prices, and the return of yen carry trade with the weakness in the Japanese currency came back to help the rupee. Also, there are big FDI and FPI flows in the sidelines; waiting for greater clarity on the political front.
• Finally, in a surprising move, SBI took the initiative to hike deposit rates between 25 bps and 75 bps. In the last 2 years, the credit growth has accelerated but deposit growth has not kept pace. This led to a vast gap between credit growth and deposit growth. Banks had to hike deposit rates, but the question was who would bell the cat? Now, SBI has belled the cat, and also set the cat among the pigeons. Considering SBI’s size and influence, other banks will have to follow suit; putting pressure on NII) growth and on net interest margins (NIMs). That could put some pressure on banking stocks in India.

STOCK MARKET TRIGGERS FOR COMING WEEK TO MAY 24, 2024

Here are some of the key stock market triggers for the week to May 24, 2024.

• This week, the Nifty closed +2.03% higher, Sensex closed +1.85% higher and the Nifty Next-50 closed +5.82% up. There was a lot of short covering. There was much greater confidence in smaller stocks as mid-caps and small caps gained +4.72% and +5.61% respectively. It remains to be seen, how much of this optimism gets carried forward.
• There are key Q4 results and FY24 results expected for large cap players like ONGC, Grasim, Power Grid, Sun Pharma, NTPC, Hindalco, and Divi’s Laboratories. Among the mid-sized players, the week will see quarterly and full year results for BHEL, BEL, Aurobindo Pharma, Bosch, Petronet LNG, Jubilant Foodworks, India Cements, Paytm, Nykaa, and Mamaearth. We are likely to see a slew of new-age digital Q4 results.
• VIX stayed above 20 for the second week in a row and that looks unlikely to change till the outcome of the elections is known and the hedges start to unwind. In the last 5 weeks, FPIs have taken out $6 Billion from Indian markets amidst rising VIX. This week will give clarity on whether the higher VIX was driven by a predominance of protection buying or betting on supports by selling puts.
• Crude oil will be in focus this week. Last week, the crude showed a small bounce from $82/bbl to $84/bbl on the back of US oil inventories winding down. This week, the US inventories are again expected to unwind on the back of delays in shipping deliveries. It is expected that OPEC would soon release more oil in the market to make the best of the robust prices. However, this is now OPEC Plus Russia, so we have to wait and watch.
• This is going to be a week in which the FOMC minutes would be published by the Fed and the language of the minutes will offer key insights into the trajectory of rates. As of now, the expectation is of rates cuts to start in September 2024, but the minutes will offer greater clarity. This week, there are also some key speeches to be made by Fed chair, Jerome Powell, vice chair Barr and the treasury secretary, Janet Yellen. These should offer a comprehensive view of the rates trajectory in the US. Fed stance has been unclear, despite the rate cut guidance given by Jerome Powell. Hawks are still sceptical.
• In IPO news, the week will see the Awfis Space Solutions Ltd IPO opening for its ₹599 Crore issue. In addition, the Go Digit General Insurance, which closed last week, will also get listed during the coming week. But the real action will continue to be on the SME side, there will be 1 IPO opening, 2 IPO closings and 7 IPO listings during the week.
• Finally, we focus on the key global data points for the week. Key data points from the US include FOMC minutes, Powell Speak, Yellen Speak, API crude stocks, initial jobless claims, PMI flash, new home sales, durables good orders and consumer sentiments. In ROW data points, we have current account, balance of trade, PMI Flash (EU); Balance of Trade, machinery orders, PMI flash, Inflation (Japan).

The big events this week will be the fifth and sixth phases of Lok Sabha elections on May 20th and May 26th. The last phase of polling will be on June 01, 2024, followed by the exit poll on the same day and final election outcome on June 04, 2024.

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 spike in the VIX, has stayed above 20 levels through the week. With the fifth and sixth phases of polls this week and the last phase next week, the VIX is likely to stay elevated.
• For the Nifty, 22,500 will be the crucial level to watch, and that will trigger the next big move. For now, the range of 22,300 to 22,400 on Nifty will be the support. With VIX above 20, the Nifty continues to be vulnerable at higher levels.
• For the Sensex, the range of 74,000 to 75,000 will be crucial that will determine the direction of the next move. For now, the Sensex appears to have decisively moved above the 73,000 resistance and a fall in VIX would help Sensex glide upwards.

After the return of positive sentiments this week, the coming week will be a truncated week due to Monday being a holiday. VIX levels and the emerging political equations will hold the key to the market direction in the coming week to May 24, 2024.