Weekly Musings – Index performance for the week ended August 18, 2023

20 Aug 2023 , 09:04 AM

The week to August 18, 2023 saw the Nifty struggling in a very narrow range of 19,300 to 19,500. Even as the Nifty closed the week 61 bps lower, the benchmark index lost value in the last couple of days to close below the 19,500 mark. The NSE VIX has now rallied to the 12.14 levels. That is low in absolute terms, but it has bounced from around 10 levels in the last one month. While the current VIX limits the downside risk, VIX has shown tendency to surge suddenly in the past. It was a truncated trading week with trading shut on Tuesday and clearing and settlement shut on Tuesday and Wednesday.

The big news in the week was the sharp spike in inflation, which put a lid to the market. However, the reaction of the Nifty was not too negative, despite the consumer inflation spiking sharply to 7.44% for the month of July. An inflation number of above 6% was already anticipated, so the surprise factor was not too great. Also, the positive side of the story was that core inflation actually tapered, giving hope that once the food prices settled with supplies coming into mandis, inflation should also trend lower. Overall, it was a rangebound week with an underlying sell-on-rises theme in the market. (For live impact, check market map)

NIFTY 50 INDEX – CAN 19,300 PROVE TO BE EFFECTIVE SUPPORT?

The table below captures the movement of the Nifty 50 index in the week to August 18, 2023.

Date	High	Low	Close
18-Aug-23	19,373.80	19,253.60	19,310.15
17-Aug-23	19,461.55	19,326.25	19,365.25
16-Aug-23	19,482.75	19,317.20	19,465.00
15-Aug-23	19,465.85	19,257.90	19,434.55
14-Aug-23	19,465.85	19,257.90	19,434.55
11-Aug-23	19,557.75	19,412.75	19,428.30
	Weekly Returns	-0.61%

Data Source: NSE

In the last couple of months, the Nifty had successfully breached several strong resistance levels like 18,400, 18,800, 19,500 and 19,800. However, in the last 3 weeks, the Nifty got very close to the 20,000 mark, but has retreated ever since. In the last few weeks, the Nifty has been making lower highs and lower lows and has drifted nearly 700 points lower compared to the 20,000 mark. Now, 19,300 and 19,000 are the last credible supports for the Nifty. This week, the fall was across the board, with mid-caps and small caps also coming under pressure. FPI flows were tepid in the week, if you exclude the GQG block deal. 

For the markets, there are two immediate concerns. Firstly, the Fed minutes published last week clearly hint at more hawkishness, possibly even taking the Fed benchmark rates to the 6% levels. In addition, the Indian rupee has weakened to an all-time low of 83.16/$, and this is putting pressure on FPI flows. Also, many of the small and mid-cap stocks tend to be vulnerable to currency volatility. In other macro data flows this week, the trade deficit in India was flat for July, but exports are facing a lot of pressure from weak global demand.

NIFTY NEXT 50 INDEX – FALLS SHARPLY FOR THE WEEK

The table captures the movement of Nifty Next 50 index in the week to August 18, 2023.

Date	High	Low	Close
18-Aug-23	43,883.10	43,613.25	43,681.00
17-Aug-23	44,127.20	43,838.05	43,892.85
16-Aug-23	44,045.05	43,662.15	44,009.75
15-Aug-23	44,460.55	43,600.10	44,008.75
14-Aug-23	44,460.55	43,600.10	44,008.75
11-Aug-23	44,862.50	44,508.00	44,566.70
	Weekly Returns	-1.99%

Data Source: NSE

In the last few weeks, the Nifty Next 50 had been under pressure and that trend got magnified in the latest week. The Nifty Next 50 fell by 199 bps, in the week, one of its sharpest weekly falls in recent memory. FPI selling was also quite apparent in a number of non-Nifty stocks, which put additional pressure on the Nifty Next-50 index. The mid-cap enthusiasm in FMCG stocks and digital stocks has also been waning and that tapered the rally as this index has quite a strong representation of these stocks. Overall, the Nifty Next-50 also showed signs of tiring amidst FPI selling. Incidentally, the Nifty Next 50 comprises of stocks that aspire to be and have the potential to be part of the Nifty 50 eventually.

NIFTY MID-CAP 100 INDEX – CLOSES ABSOLUTELY FLAT FOR THE WEEK

The table captures the movement of Nifty Mid-Cap 100 in the week to August 18, 2023.

Date	High	Low	Close
18-Aug-23	38,003.20	37,715.15	37,815.40
17-Aug-23	38,013.80	37,832.90	37,895.50
16-Aug-23	37,844.45	37,526.35	37,801.65
15-Aug-23	37,838.15	37,258.60	37,770.20
14-Aug-23	37,838.15	37,258.60	37,770.20
11-Aug-23	38,148.50	37,791.20	37,836.15
	Weekly Returns	-0.05%

Data Source: NSE

After crossing the coveted 38,000 mark last week the Nifty Mid-cap 100 index faced some selling pressure at higher levels. This week, it closed below the psychological 38,000 mark. Mid-cap stocks, by default, tend to be vulnerable to shifts in crude oil prices and the rupee value. In the latest week, the price of Brent Crude scaled to $87/bbl, but eventually settled lower on demand concerns. However, the weakness in the rupee was quite obvious, especially with the RBI not intervening to defend the rupee. In addition, many of the mid-sized Indian banks are facing the pressure of the Moody’s downgrade of small and medium sized US banks. The index closed absolutely flat for the week, but alpha hunting opportunities are still visible. We should see a lot more positive action, once the markets stabilize and start moving higher. 

NIFTY SMALL-CAP 100 INDEX – STRUGGLES AS FUNDS BAR FLOWS

The table captures the movement of Nifty Small Cap 100 index in the week to August 18, 2023.

Date	High	Low	Close
18-Aug-23	11,778.50	11,657.90	11,683.35
17-Aug-23	11,811.15	11,731.65	11,745.30
16-Aug-23	11,739.85	11,618.25	11,728.50
15-Aug-23	11,728.30	11,516.20	11,662.40
14-Aug-23	11,728.30	11,516.20	11,662.40
11-Aug-23	11,836.35	11,734.55	11,748.35
	Weekly Returns	-0.55%

Data Source: NSE

The Small-Cap 100 index was largely rangebound with a negative bias during the week as it closed 55 bps lower. Small caps may be immune to global news flows but they do tend to be vulnerable to a spike in crude oil price as well as a weak rupee vis-à-vis the dollar. However, we must understand the backdrop. Nifty Small Cap index rallied more than 20% in last 3 months, so some tapering was on the cards. One concern is that a number of large and influential small cap mutual funds have kept inflows in abeyance. They are concerned about lack of adequate supply of quality paper. However, even as HNI appetite could come down for flows, churn will continue and HNI and retail interest in small caps will stay.

BANK NIFTY INDEX – FITCH AND MOODY’S THE OVERHANG

The table below captures the movement of BANKNIFTY in the week to August 18, 2023.

Date	High	Low	Close
18-Aug-23	43,957.65	43,672.45	43,851.05
17-Aug-23	44,071.85	43,745.10	43,891.35
16-Aug-23	44,002.80	43,600.35	43,946.40
15-Aug-23	44,212.75	43,776.90	44,090.95
14-Aug-23	44,212.75	43,776.90	44,090.95
11-Aug-23	44,571.25	44,120.90	44,199.10
	Weekly Returns	-0.79%

Data Source: NSE

The Bank Nifty was actually up against a triple whammy. Firstly, the Fitch debt downgrade of the US has already led to risk-off flows, with the banking stocks being most vulnerable due to their weight in the index. Secondly, Moody’s followed up on Fitch rating action by downgrading small and mid-sized banks in the US due to their fragile balance sheets. In the last two weeks prior to the current week, the Bank Nifty fell by 152 bps and by 120 bps respectively. In the latest week to August 18, 2023, the Bank Nifty has again fallen by 79 basis points. There is also a fundamental concern on banks, despite the recent fall. The good quarterly results mask the fact that high NII growth and wide NIMs are not sustainable. That is something that has been playing on the minds of equity market investors in banks. 

NIFTY IT INDEX – WEAK NASDAQ INDEX PULLS IT DOWN

The table captures the movement of Nifty IT index in the week to August 18, 2023.

Date	High	Low	Close
18-Aug-23	30,934.10	30,515.00	30,604.05
17-Aug-23	31,238.25	30,885.40	31,060.20
16-Aug-23	31,304.75	31,047.00	31,212.10
15-Aug-23	31,058.90	30,570.50	31,028.90
14-Aug-23	31,058.90	30,570.50	31,028.90
11-Aug-23	31,164.30	30,764.50	30,819.15
	Weekly Returns	-0.70%

Data Source: NSE

In the last couple of weeks, the IT index gained on the back of a weak rupee. In the previous two weeks, the IT index had gained 321 bps and 126 bps respectively. However, this week it was the reality of a week NASDAQ index that came home to roost. The NASDAQ index fell 2.3% in lates week and that spooked IT stocks. Post the downgrades by Fitch and Moody’s there has been a sharp weakening of the rupee beyond 83/$. The week rupee is value accretive for Indian IT due to its predominant earnings in US dollars. However, for now, the larger concerns over tech spending and pricing are likely to predominate.

NIFTY OIL & GAS INDEX – IT WAS LONG ON GAS, SHORT ON OIL

The table captures the movement of Nifty Oil & Gas index in the week to August 18, 2023.

Date	High	Low	Close
18-Aug-23	7,979.50	7,895.45	7,945.10
17-Aug-23	8,021.30	7,943.60	7,956.95
16-Aug-23	8,029.70	7,941.70	8,023.55
15-Aug-23	8,031.80	7,934.50	8,004.35
14-Aug-23	8,031.80	7,934.50	8,004.35
11-Aug-23	8,054.35	7,993.80	8,019.25
	Weekly Returns	-0.92%

Data Source: NSE

It was a mixed week for oil & gas companies with the gas companies doing well while the upstream and refining companies came under pressure. Oil index fell sharply in the last 2 days after crude prices fell from $87/bbl to below $84/bbl. Refining companies also came under pressure on lower inventory valuations and tapering gross refining margins (GRMs). Downstream players like IOCL and BPCL remained under pressure for the week. The rally in the crude oil prices to above $87/bbl was halted after demand concerns cropped up once again, putting pressure on oil prices. 

NIFTY AUTO INDEX – AUTO STOCKS CLOSE THE WEEK FLAT

The table captures the movement of Nifty Auto index in the week to August 18, 2023.

Date	High	Low	Close
18-Aug-23	15,436.15	15,329.95	15,391.75
17-Aug-23	15,479.40	15,339.75	15,399.25
16-Aug-23	15,450.00	15,218.90	15,425.00
15-Aug-23	15,371.90	15,122.95	15,327.45
14-Aug-23	15,371.90	15,122.95	15,327.45
11-Aug-23	15,488.40	15,355.75	15,378.10
	Weekly Returns	+0.09%

Data Source: NSE

Auto index closed the week, almost exactly where it started off, with very limited movement during the week. There are several headwinds on the global demand and rural demand front and both are impacting the auto stocks. After the auto index lost 135 bps a couple of weeks ago, the auto index has been relatively stable in last 2 weeks. 

NIFTY FMCG INDEX – EMERGING THE SAFE HAVEN IN EQUITIES

The table captures the movement of Nifty FMCG index in the week to August 18, 2023.

Date	High	Low	Close
18-Aug-23	51,586.35	51,167.75	51,464.75
17-Aug-23	51,829.60	51,248.55	51,353.75
16-Aug-23	51,869.75	51,459.40	51,815.40
15-Aug-23	51,714.80	50,984.60	51,604.40
14-Aug-23	51,714.80	50,984.60	51,604.40
11-Aug-23	51,825.60	51,265.50	51,351.70
	Weekly Returns	+0.22%

Data Source: NSE

The FMCG index is trading at close to its 52-week high and  after the correction in the last 2 weeks, the FMCG index managed a small rally. Along expected lines, FMCG sector saw profit booking on a consistent basis. Weak rural demand, competition in the domestic market combined with stiff valuations, are making life tougher for the FMCG stocks.

What we read from the markets this week?

Here are the major takeaways from the week ended August 18, 2023. 

• Nifty is close to a key support at 19,300 and then 19,000 would be the next major support. The Fitch and Moody’s downgrade, Fed hawkishness and rising India inflation are the major overhang for markets. 

   

• FPI flows at $617 million this week continues to be tepid. Markets will remain ambivalent till there is clarity on the inflation front and the RBI approach to tackling the recent spike in inflation.

While 19,300 level remains a key support, VIX has rallied more than 20% in a month. The downside risks may be limited, but resistances are likely to be exasperating.