Market outlook for the next week (November 28 to December 1)

27 Nov 2023 , 09:10 AM

NIFTY FACES RESISTANCE AT 19,800 LEVELS

For the week ended November 24, 2023, the Nifty and Sensex gained 32 bps and 27 bps respectively over the previous week’s close. The current week continued the enthusiasm of the previous two weeks post the Fed statement on November 01, 2023; but the gains were more cautious. This could be attributed to the hawkish tone of the Fed when it released the minutes of the November Fed meet. Contrary to popular expectations, the minutes of the Fed meet had not even a remote reference to rate cuts. Fed was still unhappy with the pace of fall in inflation and hinted that more rate hikes may be necessary. Much of the action this week will be on the oil front. The OPEC and Russia meet on Sunday to take a call on cutting oil supplies, even as African members of the OPEC are up in protest.

While FPI flows reverted to negative zone, the pressure still came from secondary market selling. However, buying was still strong in the IPO market and the debt market. If oil stays in a range, then the rupee fall can be curbed and that should be positive for market sentiments. For now, the Nifty remains below 19,800, which will be the first resistance. If that level is taken out decisively, then Nifty can make a dash for 20,000 levels. The spike in the US bond yields and the dollar index appears to have normalized, while the conflict in West Asia is also waning. For now, any disruption of oil cargo movement looks quite unlikely, and that is good news for India as she relies on oil imports for 85% of daily needs. First a recap of last week.

NEWS FLOWS FROM THE LATEST WEEK TO NOVEMBER 24, 2023

There were 7 major factors that influenced the Nifty movement during the week; a mix of domestic and global factors.

1. The Federal Reserve publishes the Fed minutes a full 21 days after the Fed meeting. On November 21, 2023, the US Fed published the minutes which was more hawkish than market expectations. Even as the markets were expecting a word about rate cuts from the Fed, it emanated that rate cuts were never even discussed in the Fed meeting, leave along being considered in the near future. The focus of the Fed minutes was that the Fed would be careful about any rate decision from current levels but it held on to the view that more needed to be done to bring inflation back to the 2% level on a sustained basis. Markets were disappointed; as it belied hopes of any rate cuts in the near future. 

    

2. The OPEC meeting has been finally scheduled for Sunday, November 26, 2023 after a number of delays; something that did not favour oil prices. The OPEC+ meeting was delayed after African members like Angola, Congo and Nigeria refused to accept the supply cuts proposed by Saudi Arabia and Russia. That conflict led to a delay  in the OPEC meeting and it is now being held on November 26, 2023. It is not clear what is the tacit deal between Saudi Arabia and the African nations, but clearly, the short term concerns have been addressed. We have to await the minutes of the OPEC meeting to get a clear picture. For now, suffice to say that this entire fiasco, combined with a sharp spike in US oil inventories, resulted in a fall in oil prices. That is good for Indian markets.

    

3. It was a grand week for the IPOs. Just in the previous week, Protean eGov had a stellar listing and had gained 42% in a single week. A lot of domestic and FPI money got directed into the IPO market. We saw 5 big mainboard IPOs through the week. IREDA Ltd, Tata Technologies, Flair Writing, Fedbank Financial Services and Gandhar Oil had come to the IPO market to collect close to Rs7,500 crore. These 5 IPOs saw demand for nearly Rs3,50,000 crore with Tata Technologies managing bids worth Rs1,50,000 crore. In the first 8 months of 2023, nearly 90% of the IPOs listed are trading in positive territory. Also, there are a slew of big ticket IPOs that are lined up and so a robust IPO market will only add to the aura. 

    

4. Let us turn to the US 10-year bond yields, that was a key driver of markets in the last few weeks. For the latest week the week, the US 10-year bond yields increased from 4.426% to 4.472%, putting some pressure on the other currencies, including the rupee. This minor spike in the bond yields was triggered by the relatively hawkish tone of the Fed in its minutes. Just to recap, the Fed meeting had avoided any discussion on rate cuts and the consensus now is that the Fed may hike rates by another 25 bps. Rate cuts would be only considered towards the second quarter of 2024. This led to a spike in bond yields, although the US bond yields are substantially down from the recent peak of 5%.

    

5. We now turn to the dollar index (DXY), a barometer of dollar strength. Incidentally, the dollar index (DXY) remained in a narrow range. After opening at 103.44, the dollar index closed the week at 103.42; a very marginal move for the week. In fact, the index had surged to 103.92 on Thursday, but fell back on Friday after US oil inventories showed a sharp surge. Oil has had an outs8ized impact on global inflation. 

    

6. In a rather significant move, Warren Buffett logged out of Paytm and booked a loss even as Softbank Vision Fund sold heavily into digital stocks. Such sharp selling by global investors is not a good sign for retail investors as they could panic in a tough situation. Digital stocks play an important role and this selling has come at a time when domestic funds were starting to show improvement in numbers and price traction. That is likely to be impacted by the recent cases of selling by PE funds.

    

7. Finally, there was some good news too. CDSL reported that it had crossed the 10 crore mark in terms of number of demat accounts, which is nearly 3.5 times the number of demat accounts that NSDL has. In the last 30 months, CDSL demat accounts have nearly doubled from around 5.3 crore demat accounts. Above all, it is a signal that retail investors are taking to equities in a big way; led by millennial investor. That is normally good news for FPIs as they prefer a market where retail participation is robust as it keeps the markets liquid and also keeps the bid-ask spreads under check.

Overall, the week was not too eventful with most of the gains seen on the index stocks. Oil and autos led the gains for the week, although heavyweight banking is still under a cloud.

STOCK MARKET TRIGGERS FOR THE COMING WEEK TO NOVEMEBR 24, 2023

The coming week is likely to be very busy for the markets as a slew of domestic and international data is expected to come in. Let us look at some of the key data points and factors that will drive in the coming week. Here is the weekly outlook.

• Political factors are never too predictable, but the first results of exit polls will be out this week for state elections of Telangana, Madhya Pradesh, Rajasthan, and Chhattisgarh. This may or may not influence the national outcome; but it would give an approximate picture of the political equations. Impact is likely to be minimal.

   

• Nifty closed the week higher by +0.32% while the Nifty Next-50 closed -0.49% lower. Even the BSE Sensex was up by 0.27% during the week. In terms of psychological levels, the Nifty closed the week below 19,800. At a stock level, it is the oil & gas stocks and the auto stocks that have done very well. Coming to the small stocks space, the     Mid-cap index was up +0.57% and small cap index closes -0.39% lower. In fact, small cap index fell after several weeks of robust gains. In the coming week, the action is likely to be concentrated more on the small and mid-sized stocks.

   

• The coming week will see the corporate action record dates of several companies and this list includes record dates for corporate actions of SEPC, Talbros, Milkfood Ltd, Alphalogic Industries and Nitin Castings. In addition, the coming week is likely to be relatively tepid for IPOs as no mainboard has been announced for the coming week. The 5 mega IPOs of last week, including IREDA Ltd, Tata Technologies, Gandhar Oil Refinery, Fedbank and Flair Writing will list this week, and a robust list performance will hold the key to their performance in the coming weeks.

   

• In major macro level data, the India Q2 GDP will be announced on November 30, 2023 this week. It may be recollected that Q1 GDP in India had come in at  7.8% and the second quarter is likely to be relatively slower due to the base effect. For second quarter ended September 2023, the GDP is expected at around 6.8%, lower than previous quarter at 7.8%, but that should still support full year GDP growth of 7% for FY24. In addition, the Core sector or infrastructure growth is expected to stay above 8% for the fifth month in a row while the fiscal deficit is likely to be on track to end below 5.9% for the full year FY24. All these data points will be announced this week. Auto sales for November will also be watched to see the Diwali impact.

   

• In major US data flows, the Q3GDP second will be out this week. The first estimate for Q3 GDP was sharply higher than the median at 4.9% and that is unlikely to change substantially in the second estimate. In addition, the US PCE inflation is also expected to fall by 30-40 bps, in line with the 50 bps fall in consumer inflation in the US this month to 3.2%. The PCE inflation is the data point that the Fed uses to take a call on interest rate trajectory. The markets will also watch for the secular trend of core PCE inflation. 

   

• In terms of high frequency data for markets next week, FII flows will hold the key to next week after $127 million net selling in the current week. IPO flows and debt flows have largely offset equity secondary market outflows and that trend is likely to continue. Another key global high frequency data point will be the crude prices in the aftermath of the OPEC meet on Sunday. Further rate cuts of 1 million bpd by Saudi Arabia are likely, but it is unclear if African members like Congo, Nigeria and Angola will accede. Oil is likely to stay under pressure next week, which is good news for Indian markets.

   

• Let us finally turn to the key data flows globally. Markets will focus on US data flows like Q2-GDP 2nd estimate, PCE inflation, Powell speak, API stocks, new home sales, building permits, PMI, and jobless claims. In addition, global data points will focus on ECB meet, HCOB, and unemployment in the EU region. In Asia; markets will focus on Japanese data like retail sales, jobs, PMI, jobs, construction orders and also on the China PMI flash

Overall, the trend of the previous week is likely to carry forward to next week, with a rangebound index amidst a plethora of contrasting data flows.

NIFTY HAS TO FIRST DECISVELY BREACH ABOVE 19,800

Last week, we had written about the Nifty making a dash for 20,000 and the Sensex for 67,000 levels. However, the pressure of the recent week shows that the Nifty must first get back above 19,800 and the Sensex must breach above 66,200. Supports will continue around 19,500 on Nifty and 65,000 for Sensex. Despite all the market chaos, the volatility index (VIX) has remained stable at around 11.33. 

Political influence on markets is normally fluid, but the first exit polls of assembly elections will be out this week. More importantly, this could offer a template of how the national elections could look towards the middle of 2024.