Market outlook for the next week (01-Jul to 05-Jul)

1 Jul 2024 , 08:51 AM

STORY OF SECTORAL INDICES IN THE WEEK TO 28-JUN

The week to June 28, 2024 can be described as a week of positive sentiments for the large caps,  even as the mid can small caps were relatively subdued. FPI flows into equities were back with a bang, with FPIs infusing $4.96 Billion in the last 3 weeks. A slew of Nifty stocks like Reliance, ICICI Bank and Bharti Airtel continue to tough new highs. Here is a quick look at how the 20 key sectors performed during the week ended July 28, 2024.

Sectoral Index	Weekly Returns	Index (28-Jun)	Index (21-Jun)
Nifty Oil & Gas	3.06%	12,223.35	11,860.45
Nifty Infrastructure	2.79%	9,133.95	8,885.70
Nifty India Defence	2.74%	7,283.69	7,089.68
Nifty IT	2.72%	36,157.50	35,200.30
Nifty India Digital	2.51%	8,347.75	8,143.15
Nifty Energy	2.42%	41,437.80	40,457.55
Nifty CPSE	1.47%	6,806.75	6,708.40
Nifty FMCG	1.37%	56,756.85	55,990.10
Nifty Banks	1.32%	52,342.25	51,661.45
Nifty Non-Banks	1.23%	24,555.40	24,256.07
Nifty Healthcare	1.22%	12,576.25	12,424.50
Nifty Private Banks	1.02%	26,075.50	25,811.35
Nifty MNC	0.82%	30,362.40	30,114.70
Nifty Mobility	0.74%	21,159.92	21,005.19
Nifty Consumer Durables	0.51%	38,357.90	38,161.90
Nifty Logistics	0.46%	23,961.00	23,852.11
Nifty Automobiles	0.43%	25,200.60	25,092.30
Nifty PSU Banks	-0.25%	7,365.95	7,384.25
Nifty Metals	-1.77%	9,814.30	9,990.90
Nifty Realty	-2.40%	1,104.75	1,131.90

Data Source: NSE

Here are key takeaways from the tabulation of weekly sectoral returns above.

• Let us start with the macro picture for the week to June 28, 2024. Out of the 20 key sectors, 17 sectoral indices gave positive returns. The remaining 3 indices gave flat to negative returns for the week to June 28, 2024. While markets celebrated the return of stability in political equations, FPI flows also came back into India with a bang and the macros were supportive in the form of better than expected CAD data.
• Let us start with the top gainers for the week. Oil & gas was the top gainer in the week with 3.06% returns. The positive outlook for oil was led by Reliance with most of the oil stocks gaining from crude oil prices above $85/bbl. Infrastructure, IT and Defence were the other big gainers. IT looks like a surprise inclusion, but that is more a hedge against dollar strength. In the banking space, private banks continued to outperform the PSU banks, something that CLSA had also projected in its note. Defence and Infrastructure were big gainers on the back of government investment initiatives.
• The worst hit were the sectors like realty metals. In both the cases, these stocks had rallied sharply and there was some amount of normalization. Realty stocks are up nearly 5-6 times in the last one year, so some amount of rationalization was always on the cards. Also, in the case of metals, there are concerns about the China demand and that remains an overhang.
• With 17 out of 20 sectors giving positive returns in the week, the arithmetic average of returns of these 20 sectors stood at 1.12%. Twelve out of the twenty sectors delivered more than 1% returns for the week.

The big story in the week was that the large caps took on the mantle of outperformers during the week, even as small caps and mid-caps struggled.

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

For the latest week to June 28, 2024, FPIs were net buyers to the tune of $1,724 Million. For 3 weeks in a row, the FPIs have been net buyers in equity; infusing $4.96 Billion in the process. Here is what drove the markets during the week.

• The current account for the fourth quarter ended March 2024 came in at a surplus, for the first time in 11 quarters. More importantly, it was the first surplus in a normal year in nearly 20 years, if you exclude the impact of the pandemic. Q4FY24 reported a current account surplus of 5.7 Billion or 0.6% of GDP; while full year CAD was subdued at $23.2 Billion or just 0.7% of GDP. The street was expecting CAD at around 1% of GDP, but this is a lot better than the street expectations.
• FPI buying in the week came in robust at $1.74 Billion. In the last 3 weeks, the FPIs have infused a robust $4.96 Billion into equities, as FPIs are back with a vengeance into Indian equities. Most of the buying has come in the secondary equity markets. However, if you look at the net inflows for the first half of 2024, it is debt inflows that accounted for 96% of the total FPI inflows.
• Infrastructure growth for May 2024 came in at 6.3%. While this is below the revised figure for April, this is on a 63 bps higher base. That has to be factored in. Out of the eight core sectors, the positive triggers came from coal output, electricity, steel, and natural gas production. Crude extraction, fertilizers and cement reported de-growth.
• The RBI Financial Stability Report (FSR) was published during the week with the broad message being that the banks had substantially improved in the last one year in terms of asset quality, capital adequacy and profitability. The report also pointed to pressures on NII growth and on net interest margins (NIMs). However, that was unlikely to impact the resilience of Indian banks in any meaningful way.
• For May 2024, India reported a fiscal surplus of ₹1.50 Trillion; although that was more because the RBI dividend of ₹2.11 Trillion for FY25 was accounted for in May 2024. Ideally, that should have been defrayed, but this makes the fiscal surplus in May less of an achievement. India appears to be on par to achieve the target of 5.1% of fiscal deficit for FY25, or even lower than that.
• The week saw the rupee take some support and harden on the back of positive CAD numbers. In addition, the robust FPI flows also helped the rupee to strengthen after touching an all-time low of 83.7/$ during the week. However, in US cues, the bond yields in the US and the dollar index (DXY) continue to edge higher in the week. Both these factors are likely to put pressure on the Indian rupee.
• There were 3 key data points that were announced in the US during the week. The first data point was GDP growth final estimate for Q1-2024 at 1.4%. That is sharply lower than the previous two sequential quarters. At the same time, the PCE inflation for May came in 10 bps lower at 2.6%. This was led lower by PCE core inflation and PCE food inflation, even as PCE energy inflation remained under stress. The third big data point was the US banking stress test, which indicated that the large banks in the US were much more stable and resilient than the last year. These 3 factors are likely to impel the Fed to cut rates in September, or even earlier on July 31, 2024.
• There was some real action in cement stocks as the big guns scrambled to enhance capacity at a scorching pace. Cement companies are looking to invest close to ₹1.50 Trillion in capacity enhancement in the next few years. The big deal in the week was Ultratech Cements picking up a significant stake in south based India Cements. This will propel Ultratech capacity closer to 200 Million tonnes per annum (MTPA) of capacity in the next few years.

Let us now turn to what could be the big market triggers for the coming week to July 05, 2024.

STOCK MARKET TRIGGERS FOR COMING WEEK TO JULY 05, 2024

Here are some of the key stock markets triggers that can influence the direction of the stock markets in the coming week to June 28, 2024.

• Among generic indices, Nifty closed +2.17% up, Sensex +2.36% higher, and the Nifty Next-50 closes +0.58% higher. Oil & IT stocks led the gains in the week; with some support from private banks. In addition, the Mid-cap index was up +0.56% and the small cap index closed +0.45% higher. Focus is likely to continue on the large caps for now, although wider retail interest will being back interest in smaller stocks too.
• The coming week will see key dividend record dates (RD) of GHCL, Tata Communication, Bajaj Consumer, Dalmia Bharat Sugar, SKF India, Tata Power, Apollo Tyres, Balkrishna Industries, Bharat Forge, Biocon, Escorts Kubota, Mahindra & Mahindra, Navin Fluorine, Thermax Ltd and Piramal Enterprises Ltd. Oil India has RD for bonus issue this week
• It is a week of key macro data coming from India. The PMI manufacturing, PMI Services and the GST collections of June will be out in the week. They are key high frequency indicators giving an idea about the robustness of the Indian economy. In addition, the auto sales numbers of the large players, in terms of dealer dispatches, will also be put out in this week.
• The FOMC minutes will be published on July 03, 2024 and it assumes significance as it is likely to offer guidance on the timing of the first rate cut. The minutes will contain detailed discussions on the Fed policy statement as well as on the quarterly projection of key macroeconomic data for the next 3 years. Jerome Powell is scheduled to speak during the week and that would also be closely tracked.
• FPI flows, oil prices and US bond yields will hold the key in the coming week. FPIs infused $4.96 Billion in the last 3 weeks and there looks like a turnaround. Secondly, oil prices hold the key as we could see more clarity on Russian oil supply cuts during the coming week. Last week oil rallied above $87/bbl. US bond yields and the dollar index have been moving higher in the last few weeks, and that would also be a data point to watch.
• The coming week will be an interesting week for the IPO markets. IPOs of nearly ₹2,700 Crore of fund raising is expected this week, with the Emcure Pharma IPO dominating at ₹1,952 Crore. There will be a total of 11 listings in the week, including two mainboard IPOs of Vraj Iron & Steel and Allied Blenders.
• India VIX has been in the limelight for some time. Even after the election, the VIX touched a low of 12, but has since bounced back to the 15 levels. However, the relatively low VIX levels will make it a buy-on-dips market for the time being.
• Finally, a quick look at global market triggers. Key US triggers include PMI, construction spending, JOLTS, FOMC minutes, API stocks, factory orders, balance of trade, initial jobless claims, non-farm payrolls and unemployment rate. Key triggers for rest of the world (ROW) include ECB Meet, HCOB, Inflation, Retail Sales (EU); PMI, Consumer Confidence, Household Spending (Japan); Manufacturing PMI and Composite PMI (China) and UK General Elections, PMI, new car sales (UK).

While data flows are not too heavy in the coming week, the focus will be more on the FOMC minutes and the likelihood of Fed rate action.

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 VIX. It has sobered from 27.3 to 12.8 but bounced back to 15.0 levels in the week. VIX spiked last week due to F&O expiry related volatility, but now looks likely to gradually converge towards a lower level.
• For the Nifty, 24,000 has been just taken out and a lot will depend on whether it sustains above 24,000 with volumes. There are still shorts in the market and the markets will be buoyant till these are covered. However, one must remember that there is tremendous momentum in frontline stocks like Reliance, Bharti Airtel, ICICI Bank etc.
• For the Sensex, the level of 79,000 has just been taken out; and if it holds with volumes, it should open the road for the Sensex scale above the 81,000 mark. Union budget discussions and cues from the government will be an important data point to track.

Political uncertainty and VIX volatility are now history. The focus shifts to the Union Budget, but the more immediate concern will be how the Q1 corporate results pan out?