Market outlook for this week December 4 to December 8)

4 Dec 2023 , 07:32 AM

MARKET CAP $4 TRILLION AND STILL COUNTING

During the latest week, the BSE market cap managed to touch $4 trillion for the first time in history. That puts India in the exclusive bracket of four of the most valuable markets in the world after the US, China, and Japan. That distinction is likely to set a lot of investors pondering if it really makes sense to ignore the Indian market at this juncture. After all, here is an Indian market that stands with $3.5 trillion GDP and poised to grow to $5 trillion over the next 6 years. That roughly translates into a market cap of more than $7 trillion based on current Buffett ratio multiple and that is the kind of upside no global investor would like to miss. More so, when the GDP growth is robust at 7.6% in the second quarter. That partially explains why the FPIs were back in droves in the Indian market last week.

The FPI narrative in the previous week had a deeper story. For instance, FPIs have infused $2.65 billion into Indian equities in the last 4 weeks of which a whopping $2.2 billion came in just the last week to December 01, 2023. With the US bond yields coming down by 79 bps from the peak and the dollar index also down sharply from 107 to 103 levels, there is a direct hint of the rupee hardening and FPI flows into equity and debt making a comeback. Both these trends were visible in the latest week to December 01, 2023. That is where the chips are falling in place. You have an economy growing at 7.6% in the latest quarter, inflation in control and the Buffett ratio still leaving enough room for value creation. Amidst all these concerns, the rolling Nifty EPS for four quarters stands at Rs936, hinting at a P/E ratio on historical data at just about 21 X with dividend yield at close to 1.4%. That is a story!

NEWS FLOWS FROM THE LATEST WEEK TO DECEMBER 01, 2023

There were 10 major factors that influenced the Nifty movement during the week; a mix of domestic and global factors.

1. The big news in the week was the GDP data with Q2 GDP growing at 7.6%, despite domestic and global headwinds. In fact, the nominal GDP growth in Q2 was better than in Q1. Even as agricultural growth lagged in Q2, it was more than made up by strong traction in manufacturing, mining, utilities, and construction; all major lead indicators of an economy poised to grow at much higher levels. No doubt, FPIs were impressed.

    

2. If the FPIs were impressed, they did not hesitate to show it. November marked a total turnaround in FPI sentiments. Debt inflows had started a couple of weeks back, but the latest week was about equities in general and about secondary markets in particular. For the week, the FPIs infused $2.2 billion into equities with traction seen in equal measure in primary markets and secondary markets. IPOs really had a great week just gone by.

    

3. On the IPO story, it was about 5 major IPO listings during the week; all from the mainboard. Tata Technologies gained 140% post listing while IREDA, Gandhar Oil Refinery and Flair Writing Products gained between 50% and 70% post listing. The only IPO to close flat post listing was Fedbank Financial Services but that is the kind of exception that only proves the rule. The moral of the story is that big appetite is back for mainboard IPOs and we could now see a slew of big ticket IPOs in December.

    

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 fell further from 4.31% to 4.21%. that means; the US bond yields are now a full 79 bps below the peak of 5% scaled just about 4 weeks back. This is likely to bring down the pressure on FPI flows into India and also ensure that Indian yields are not forced to parrot the global trend.

    

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 103.20, the dollar index closed the week at 103.23; a very marginal move for the week. In fact, the index had gone as high as 107 about 4 weeks back and this is a clear sign of dollar weakness and a sign that the rupee should now bottom out. This is again something that will please the FPIs as they have always been particular about the dollar denominated returns in India.

    

6. In more India macro data, core sector growth flattered at 12.07%, marking the fifth month in a row that core sector growth has stayed above 8%. In two of these five months, the core sector growth has been above 12%, something not seen in a long time. It is clear sign that the government focus on capex is yield rich dividends and the core sector is likely to directly translate into higher sustainable rates of growth in GDP and IIP. After all, the core sector infrastructure basket accounts for 40.27% of IIP basket.

    

7. There was also the fiscal deficit data that came out as of October 2023. In the first 7 months, the government has only exhausted 45% of the fiscal deficit window. That means; 5.9% fiscal deficit as a percentage of GDP is not just achievable, but could even be bettered in an optimistic scenario. This bodes well for the level of fiscal deficit and reduces the pressure on the Indian rupee and also of rating downgrades by the international rating agencies.

    

8. The week also saw interest inputs from the US economy. The US Q3 GDP second estimate came in 30 bps higher at 5.2%. This makes a mockery of the rather insipid estimate of 2% GDP growth for 2023 and now markets are veering around to the reality that it could be at least 40 bps to 50 bps higher. That is great news for Indian exports and also for tech spending, which lies at the core of the fortunes of Indian IT sector.

    

9. The US PCE inflation came in sharply lower at 3.0%, a fall of 40 bps over the previous month. While the Fed may still worry about the 100 bps gap from the eventual target of 2%, there are some key positives. Core PCE inflation has come down sharply to 3.5% and the sharply lower PCE inflation means that rate hikes are ruled out for the time being. Fed may be in wait and watch mode for longer, but it is clear that rate cuts may eventually be more aggressive that what the Fed had suggested. At least, that is what the CME Fedwatch is suggesting at this point of time.

    

10. Finally, as the week ended on Sunday, the assembly election outcome was a vote for the continuation of the reforms process. It was seen as a last referendum before India went to polls in 2024 with the NDA seeking its third re-election. The verdict in the Hindi heartland was decisively in favour of the ruling NDA, and that is likely to be viewed as a sign of positive tidings for the ongoing reforms engine.

Overall, the week marked a turnaround in the story of India as an investment decision. The next few weeks will be critical in confirming that trend.

STOCK MARKET TRIGGERS FOR COMING WEEK TO DECEMBER 08, 2023

With much of the data flows done and dusted in the recent weeks, the coming week will be about what could be the way forward. Here are some important cues.

• For the previous week, the Sensex closed +2.29% higher, Nifty closed +2.39% higher while the Nifty Next-50 closes +4.03% higher. Nifty scaled past the 20,100 level this week on the back of strong GDP data and positive global FPI flows. That leaves 20,500 as the next credible resistance for the Nifty. Action was robust in smaller stocks too with mid-cap index up +3.17% and small cap index up +2.98%. Alpha hunting is likely to be the name of the game in the coming week too. 

   

• With robust action in the IPO listings last week, the focus shifts to next big round of mainboard IPOs in coming weeks       . One can expect date announcements for key mainboard IPOs of Muthoot Microfin, DOMS Industries and Allied Blenders & Distilleries. With four of the five IPOs getting stellar listing last week, the IPOs will be one of the major playgrounds where the FPIs will be looking to participate.

   

• On the macro data, the only big data point in the coming week is the PMI services. In lien with the fall in PMI manufacturing, even the PMI services is likely to fall. However, it will still stay well above the cut-off 50 mark indicating that industry and services are still expanding, albeit with some loss of momentum. In addition, the salutary impact of the robust GDP numbers on sectors like auto, capital goods and metals are set to continue.

   

• The big even in the coming week will be the Monetary Policy announcement by the RBI on December 07, 2023. While one can expect status quo on rates, that is not the main point of contention. Markets are keen to see if the RBI changes its stance, since the current stance is not relevant any longer. Also, it is likely that the RBI may raise its growth estimate from 6.5% to closer to 7% after the latest GDP reading at 7.6% in Q2.

   

• In the aftermath of crude oil prices falling post the supply cuts by the OPEC, focus will remain on Brent crude prices, which is not expected to taper towards the $75/bbl mark. That is good for India, with all its import commitments. Also, the oil market is seeing a shift away from OPEC Plus domination to a great role played by the Next 7 large producers of crude oil in being the swing producers and determinants of oil prices.

   

• After the stellar show by FPI last week, infusing $2.2 billion into Indian equities, the FPI flows into secondary markets this week will be closely watched. However, with strong India GDP data and a relatively reform oriented verdict in the assembly elections, it looks like FPIs may be back in droves. Of course, we have to await the actual numbers, but the set up is all ready to get FPI flows in large numbers into India.

   

• In the coming week, the markets will continue to focus on the US bond yields, the dollar index (DXY) and the CME Fedwatch. Currently, all three are in tandem. The CME Fedwatch is hinting at aggressive rate cuts by the Fed, US bond yields are down 79 bps from the peak and DXY is sharply lower. All these bode well for FPI flows into India and for the sentiments in the Indian market. These 3 factors will continue to dictate terms.

   

• Finally, let us move to US data focus. Points to track include factory orders, Composite PMI, JOLTS, API stocks, trade balance, Fed balance sheet, Atlanta Fed, GDP peg. In addition, markets will focus on European cues like EU PMI and GDP as well as UK PMI and Halifax HPI. Asian cues will include Japanese CPI, GDP and household spends plus China trade and PMI.

Overall, the coming week is likely to see positive outcomes from the data flows; both on the domestic and the global front.

NIFTY NEXT TARGET IS 20,500

F&O data indicates Nifty in uncharted zone with next resistance only at 20,500. Low VIX at 12.3 levels, will keep it a buy-on-dips market. With Sensex breaching above 67,000, the next resistance range would be from 69,000 to 69,500, with a clean run in between. Even if fresh buying bides its time, short covering should do the trick for markets. Will the assembly elections be seen as a vote on 2024? Not exactly, but that may not really matter now!