Weekly Musings – Index performance for the week ended September 15, 2023

The stock markets have a fascinating way of surprising the investors and analysts alike. Just a couple of weeks back, the debate was whether the Nifty can break the multiple resistances to cross the 20,000 mark. In just two weeks, the Nifty has done that and more and is now almost on the threshold of 20,200. All this happened with virtually zero support from the FPIs. The week to September 15, 2023 saw the Nifty gaining sharply by 1.88% as the index closed at an all-time high of 20,192. The data flows were largely neutral. However, inflation at 6.83% was lower than July while the IIP came in at a robust 5.7% for the latest reported month of July 2023. However, there is also the macro story. In a world that is struggling to grow its GDP, India is already the fastest growing large economy (among nations with GDP of more than $1 trillion) for 2 years in succession. It is in this context that India’s larger and more prominent role in global affairs is being seen in a new light.

In the previous week, where the markets still interpreted the inflation and IIP data in positive light, there were some concerns on the trade data. Trade deficit widened to above $24 billion, a spike of 16% over the previous month. This was largely an outcome of imported inflation due to weak rupee and rising global crude prices. The big data point for the market in the coming week is the FOMC meeting where the outcome on September 18, 2023 will decide the future course of the markets and of FPI flows. However, what must be remembered here is that the journey of 800 points on the Nifty in the month of September 2023 has been achieved with zero support from FPI flows. It has entirely been about domestic flows; both retail and institutional. (For live impact, check market map)

NIFTY 50 INDEX – NIFTY AT UNCHARTED HIGHS

The table below captures the movement of the Nifty 50 index in the week to September 15, 2023.

Data Source: NSE

During the week the Nifty broke through two crucial resistance levels of 19,800 and 20,000. It closed the week at 20.192 positioning the Nifty a full 192 points above the psychological 20,000 mark. The 1.88% rally in the Nifty during the week comes on top of the 1.98% rally in the previous week. The Nifty rally was largely driven by banks, IT, and auto stocks. Banks continue to gain from the lag effect of the RBI’s decision to phase out the Incremental CRR (I-CRR) in a phased manner. However, the lower inflation reading in August, compared to July 2023, as well as a sharp bounce in IIP for July were encouraging. What really mattered to the IIP growth was that it was led by a sharp revival in manufacturing activity.

NIFTY NEXT 50 INDEX – CLOSES THE WEEK, FLAT TO NEGATIVE

The table captures the movement of Nifty Next 50 index in the week to September 15, 2023.

Data Source: NSE

In last few weeks, the Nifty Next 50 may have shown the tendency to mirror the Nifty, but this week it moved in contrast. The story appeared to be of profit booking in non-Nifty stocks and this trend also hit the mid-caps and small cap stocks. For starters, the Nifty Next-50 is a collection of stocks with the potential to become Nifty stocks at a future date; what we call as Nifty aspirants. The Nifty Next-20 started the week above the 46,000 mark, and after gyrating at lower levels, it managed to close the week almost where it started. There has been a sustained unwinding in a lot of non-index stocks and that has been largely driven by individuals as well as mutual funds churning their portfolios at higher levels.

NIFTY MID-CAP 100 INDEX – MID-CAP SHINE WAS DENTED THIS WEEK

The table captures the movement of Nifty Mid-Cap 100 in the week to September 15, 2023.

Data Source: NSE

It was a relatively tepid week for the Mid-cap index which continues to face resistance at the 41,000 levels. Here again, the story was all about unwinding and that is hardly surprising considering the kind of gains that this segment has seen in the recent past. Since the start of 2023, the mid-cap index has topped 35% gains, some amount of profit taking is likely to be par for the course. However, the advance decline ratio of the mid-cap index during the week was in favour of the declines, which is a trend that contrasts to the previous weeks. One concern remains that a sharp fall in mid-caps could dent retail participation in the equity markets, but these are early days still. In a market where the generic indices are at historic highs, investors are going to see a lot of alpha hunting value in mid-cap stocks with focused business models and low debt quotient.

NIFTY SMALL-CAP 100 INDEX – SELLING PRESSURE AT 13,000 LEVELS

The table captures the movement of Nifty Small Cap 100 index in the week to September 15, 2023.

Data Source: NSE

Like the mid-cap index, even the small-cap index saw stock-specific selling pressure. The index has been facing resistance around the 13,000 levels. However, the small cap index has already outperformed the Nifty by a huge margin this year and that is what matters. There were a number of railway and defence stocks, which saw unwinding in the week but the underlying theme still appeared to be capex spending. That is not going away in a hurry. This index has a direct bearing on the participation of the retail and small investors and hence holds the key to the market mood.

BANK NIFTY INDEX – WITHDRAWAL OF I-CRR BUOYS BANKS

The table below captures the movement of BANKNIFTY in the week to September 15, 2023.

Data Source: NSE

The I-CRR may have been withdrawn in the previous week, but the lag effect continued in the latest week also with the Bank Nifty gaining close to 2.38% for the week. That helped to keep the Nifty buoyant during the week. With a 37% weightage for the financials in the Nifty, what is good for Bank Nifty is obviously good for the Nifty also. It must be noted that, the Bank Nifty index is still away from its all-time highs, but the benefits of the phased withdrawal of I-CRR was evident in banking stocks in the current week also. The phasing out of I-CRR promises to release liquidity for banks to lend. That is seen as NIM positive.

NIFTY IT INDEX – STILL BETTING ON DOLLAR DEFENSIVES

The table captures the movement of Nifty IT index in the week to September 15, 2023.

Data Source: NSE

In the past, the Nifty IT index has largely tried to mirror the NASDAQ. However, despite the sharp fall in the NASDAQ this week, the Nifty IT index has given a repeat performance this week with 2.9% returns. With the fundamental concerns on IT stocks still remain; like tech spending and margins, investors have been looking at IT stocks as a dollar defensive bet. In a volatile currency market, these dollar earning cash-rich IT stocks to still offer a very lucrative and enticing bet. Even if you look at IT from a longer term standpoint, they have been the best sectoral performers in 4 out of the last 10 years. Of course, there is a mid-cap story that has always bene brewing in the IT space.

NIFTY OIL & GAS INDEX – OIL TAKES A BREATHER

The table captures the movement of Nifty Oil & Gas index in the week to September 15, 2023.

Data Source: NSE

In the previous week, the oil & gas index had closed with smart gains of 3.20%. This week, it was a contrast with losses of -1.01%. With Brent crude prices still above $94/bbl, upstream has reasons to be optimistic, but there are already concerns in the market that the oil rally may be overdone. The belief is that the demand vectors may not be as supportive of higher oil prices as the supply vectors. It remains to be seen if Brent Crude really gets above $100/bbl mark. While such a level may be technically positive for the upstream oil stocks, that is the level at which subsidy sharing becomes the bigger challenge, especially as India approaches an election year.

NIFTY AUTO INDEX – AUTO STOCKS STILL THE BLUE EYED BOYS

The table captures the movement of Nifty Auto index in the week to September 15, 2023.

Data Source: NSE

In the last couple of weeks, the Auto index scaled its life-time highs and that trend was repeated this year also. On the back of improved monthly numbers, there has been a surge in auto stocks, both two-wheelers and four-wheelers. It is a longer term trend of supply struggling to keep up with demand. However, auto stocks in India have the overhang of rich valuations and that could limit sharp upsides for this sector. Not to forget, weak rural demand and tepid export performance are likely to be an overhang.

NIFTY FMCG INDEX – WAITING FOR THE SEPTEMBER QUARTER

The table captures the movement of Nifty FMCG index in the week to September 15, 2023.

Data Source: NSE

In the previous week, FMCG index was the only major index to close with significant losses. This week, it has given positive returns of 0.23%, but that is not too much. While there have been hints of a revival in rural demand (a major positive for FMCG stocks), the spike in crude prices to $94/bbl remains a concern for the FMCG sector. Also, rising food inflation would keep a lid on the FMCG story. Indian FMCG companies are making a big bet on food products as well as a revival of rural demand. In Q1, top line growth was neutral but bottom line was encouraging. One has to wait for Q2 results for the next big trigger.

WHAT WE READ FROM THE MARKETS THIS WEEK?

Here are the major takeaways from the week ended September 15, 2023. 

• Nifty decisively broke to historic highs of 20,192 at close; and now looks to be decisively above the 20,000 mark. A lot will depend next week on the outcome of the FOMC meeting on September 19, 2023. 

   

• FPI flows during the week were negative for the second week in a row, but there is enough ammunition among domestic institutions, HNIs and retail to sustain this rally!