Market outlook for the next week (02-Sep to 06-Sep)

3 Sep 2024 , 03:26 PM

SECTORAL STORY IN THE WEEK TO AUGUST 30, 2024

The week to August 30, 2024 saw the Nifty and the Sensex closing with strong gains, thanks to the positive sentiments expressed in the Reliance Industries AGM, and the US GDP data. The India GDP data, fiscal deficit update and the US PCE inflation were announced late on Friday, so the markets did not have much time to react to that last week. The FPIs turned aggressive net buyers in the week to the tune of $2.82 Billion. Now, the Indian equity markets have seen net infusion of over $10 Billion since the Modi 3.0 government took charge. Here is a look at how 20 key sectors performed in the week to August 30, 2024.

Sectoral Index	Weekly Returns	Index (30-Aug)	Index (23-Aug)
Nifty Non-Banks	4.25%	26,833.44	25,739.39
Nifty IT	4.13%	42,787.80	41,089.85
Nifty Realty	3.47%	1,053.40	1,018.10
Nifty Healthcare	2.88%	14,506.85	14,100.85
Nifty India Digital	2.86%	9,566.10	9,299.80
Nifty Oil & Gas	2.41%	13,456.90	13,140.45
Nifty Infrastructure	1.66%	9,425.75	9,271.95
Nifty Automobiles	1.25%	26,172.80	25,850.70
Nifty Metals	1.24%	9,405.25	9,290.50
Nifty Energy	0.97%	43,757.40	43,338.15
Nifty Consumer Durables	0.94%	41,312.85	40,926.60
Nifty CPSE	0.92%	7,401.30	7,333.80
Nifty Banks	0.82%	51,351.00	50,933.45
Nifty Private Banks	0.73%	25,687.75	25,502.85
Nifty Mobility	0.41%	22,349.60	22,258.27
Nifty Logistics	0.35%	25,003.83	24,916.14
Nifty MNC	0.23%	30,975.70	30,905.15
Nifty PSU Banks	-0.45%	6,985.80	7,017.70
Nifty FMCG	-0.55%	63,059.75	63,409.25
Nifty India Defence	-2.18%	6,928.69	7,083.03

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 August 30, 2024. Out of the 20 key sectors, the gainers again managed to dominate the week. While 17 sectoral indices gave positive returns for the week, only 3 sectors recorded negative returns. However, even among the sectors that gave positive returns; 9 out of the 17 sectors gained more than 1%. Clearly, the tentativeness and ambivalence of the first half of August has given way to a greater confidence in the domestic and global economic situation.
  
• Let us start with the story of the top gaining sectors for the week. Nifty non-banks with 4.25% gains, Nifty IT with 4.13% gains, and Nifty Realty with 3.47% gains; flattered the street in terms of positive cues. Out of the 9 sectors gaining over 1% in the week, 6 sectors gained more than 2%. Among the big gainers, NBFCs were a play on rate cuts, while IT gained on strong US growth data. Realty sector gained on the back of the ₹5,000 crore QIP proposed by Prestige Estates, showing positive outlook for the sector. Oil & Gas sector also saw some positive traction after the Reliance AGM and signals of improving gross refining margins (GRMs).
  
• What about the sectors giving negative returns. There were 3 sectors giving negative returns in the week, out of which Nifty India Defence was the big loser at -2.15%. The defence sector has been tapering for the last 5 weeks and there are clear valuation concerns emerging. However, revenue and profits outlook for defence continues to be strong. Among the other sectors which lost 55 bps and 45 bps respectively were FMCG and PSU banks. Like defence, PSU banks are paying the price of a massive rally in the last one year. The FMCG sector rallied over 14% in the last 5 weeks, so some cooling on a short term basis is on the cards. Overall, there are no disconcerting signals as of now.
  
• With 17 out of 20 sectors giving positive returns in the week, the arithmetic average of returns of these 17 gaining sectors stood at 1.74%, while the arithmetic average of the 3 losing sectors stood at -1.06%. Of course, this could be more of a statistical aberration due to the limited number of losing sectors.

During the week, Nifty VIX remained elevated at around to 13.5 levels; still not low enough to warrant a buy-on-dips strategy. For that; VIX has to trend in the range of 11-12.

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

For the latest week to August 30, 2024, FPIs turned net buyers to the tune of $2.82 Billion. With 2 weeks of consecutive buying, the FPIs have offset the outflows of the previous three weeks. More importantly, the FPIs have now infused $10 billion into equities since the start of June 2024. Debt flows are icing on the cake. The big story this week was from data flows.

1. For the first quarter ended June 2024 (Q1FY25), India reported real GDP growth of 6.7%. This was largely along expected lines, but does raise questions of the RBI full year projection of 7.2% GDP growth for FY25. However, while agriculture and services sector came under pressure, manufacturing continued to see robust growth in the quarter. One more positive takeaway was that the despite the real GDP growth being lower in Q1FY24, the nominal GDP growth was higher by 120 bps at 9.7% compared to the year-ago quarter. Clearly, the impact is more on inflation even as economic activity has stayed robust. But, there was more good news from Moody’s Ratings.
   
2. The ratification came from Moody’s which raised the GDP growth forecast for India by 40 bps to 7.2% from 6.8%. What is more interesting is that the Moody’s note has pointed to two important triggers for the upgrade to GDP numbers. Firstly, they expect the combination of revival in capex cycle to boost growth on a long term basis. Secondly, the combination of bounce in rural demand and demographic dividends is likely to be an unbeatable combination for Indian economy. One has to wait and watch.
   
3. There were more positive for India from the fiscal deficit update for July 2024. FY25 fiscal deficit was pegged in the full budget of July 2024 at ₹16.13 Trillion or 4.9% of GDP. As of the close of July 2024, only 17.2% of the full-year target has been achieved. Unlike in June, this pertains to the sharply reduced fiscal deficit target. That means; India is on part to achieve 4.9% or better in FY25 and even go well below 4.5% fiscal deficit in FY26.
   
4. Oil and rupee continued to be in a positive state from the Indian macro standpoint. Brent crude well sharply towards the $76/bbl mark due to the US economy seeing lower than expected drawdowns of oil reserves in the week. The US peak demand for gasoline appears to be easing and that is likely to keep oil prices below $80/bbl. As a result, even without RBI intervention, the rupee stayed well under ₹84/$. That is overall positive for the sentiments in the Indian equity markets.
   
5. Core infrastructure sector growth for July bounced back to 6.12%, combined with an unexpected 115 bps upgrade to the core sector growth for June 2024. There were two core sectors that contracted in July 2024 viz. oil extraction and natural gas. However, there were positive growth triggers from some of the big heavy weight sectors like oil refining, steel, electricity, and coal production. These four core sectors, which account for more than 76% of the core sector basket, showed above 6% growth. it is also a clear affirmation of the fact that core sector growth remains robust despite the lower growth in capex at just 11.1% for FY25, compared to 30% in the last two years.
   
6. SEBI revised eligibility norms for inclusion / exclusion of stocks in F&O. The focus would be on increasing the median quarter sigma order size and the market wide position limits (MWPL) by three-fold. The idea is to ensure that only high quality players and well-backed investors with financial muscle trade in the F&O market. The new norms are likely to drastically change the composition of stocks in the F&O list. More importantly, it is likely to be a disincentive for small and retail investors to punt in the F&O market.
   
7. There were big data flows coming from the US Bureau of Economic Analysis (BEA). The second estimate of Q2-2024 GDP and the PCE inflation for July 2024 were published by the US Bureau of Economic Analysis (BEA) on Thursday and Friday respectively. The second estimate of Q2 US GDP got further upgraded by 20 bps to 3.0% from 2.8% in the first advance estimate. It may be recollected that the first advance estimate of 2.8% itself marked a doubling of GDP growth on a sequential basis. The PCE inflation data, announced one day later, was static at 2.5%, as was the core PCE inflation at 2.6%. with food inflation and core inflation static, it was only energy inflation that eased by a marginal 10 bps in the month. PCE inflation has reported an average level of 2.58% in the last 9 months, enough indication that the journey of inflation towards 2% now almost looks inexorable. This is a strong stimulus for the Fed to pursue the first rate cut when it meets next on September 18, 2024.
   
8. The week also saw the 47th AGM of Reliance Industries with a grand plan for the future. To make the price of the stock more accessible to retail investors, the company announced a 1:1 bonus, which will be approved in the September 05, 2024 board meeting. This is the second bonus since 2017 and only the third bonus issue in the last 27 years. In his AGM speech, Mukesh Ambani had stated that the new energy business would be the big growth engine of growth. He also projected that the new energy business of Reliance Industries would achieve the size of the oil to chemicals (O2C) business of the group in the next 4-5 years. Digital and retail continue to drive growth.

The focus in the coming week will be more on the US unemployment report for August, as well as the domestic data flows pertaining to PMI and the monthly auto dispatch numbers.

STOCK MARKET TRIGGERS FOR COMING WEEK TO SEPTEMBER 06, 2024

Here are some of the key stock markets triggers that can influence the direction of the stock markets in the coming week to September 06, 2024.

• For the week, the Nifty gained +1.66%, Sensex gained +1.58%, while the NSE Next-50 also gained +1.18% . The sentiments changed sharply after the Reliance AGM and the week also saw a clear bias in favour of the large cap stocks. Among smaller indices, Mid-cap index gained by +1.25% while the Nifty small cap index gained +1.19% higher last week. It looks like alpha hunting has taken a back seat, and the trend is likely to continue for now.
  
• With Q1 results season over, there are key record dates to focus on this week. Key names include Kopran, Deepak Fert, Goa Carbon, TCNS, Aarti Drugs, Heranba, New India, Quess, SCI, VST, Senco. Their dividend record dates are expected this week. Also, the last week saw big data flows coming in late on Friday; viz, India GDP, India fiscal deficit update, core sector growth, and the US PCE inflation. These data points are likely to find reflection in the market this week; and the broad undertone likely to be positive.
  
• The big global data point this week will be the US August unemployment report. It was the July unemployment level of 4.3% that had spooked markets in early August. This time, the US unemployment is expected to taper 10 bps to 4.2% but that should still clear the way for Fed rate cuts. Focus will also be on Fed Speak this week (John Williams and Chris Walker) for signals of September rate cut and the road ahead for rates.
  
• In domestic data flows, the India PMI manufacturing and auto numbers are to be announced this week. While PMI manufacturing is likely to stay robust, auto dispatches may be weak ahead of the festive season. Also, the Nifty VIX has been sticky at above 13 and that may have to come down to the 11-12 range for a buy-on-dips strategy.
  
• FPI flows will be in focus this week after robust inflows of $2.82 billion last week; albeit coming largely from index constitution reshuffle. Broadly, equity buying is likely to continue. Also, the sharp fall in Brent prices and steady rupee will be in focus this week. Last week, Brent again faced resistance at $80/bbl and closed near to $76/bbl. Even without the RBI intervention, the rupee has been steady around ₹84/$. The weak oil prices and steady rupee are likely to persist in the coming week also.
  
• It will be another week of IPO action. On the mainboard; 1 IPO opening, 2 listings, and 1 IPO closing are expected this week. While Gala Precision IPO will open in the week, Premier Energies IPO will close. The listings of ECOS and Bazaar Style is expected this week, although the focus will now shift to the ₹6,560 Crore mega Bajaj Housing IPO scheduled to open on September 09, 2024.
  
• Finally, a look at the global data points. Key US data includes PMI, Vehicle sales, construction spending, Biege Book, JOLTS, factory orders, crude stocks, initial jobless claims. Key ROW data includes. HCOB, Q2GDP, Q2 Employment (EU); PMI, Capital spend, household spending (Japan); Caixin PMI (China)

Let us finally turn to the Nifty and Sensex outlook for the coming week.

PARTING THOUGHTS ON NIFTY AND SENSEX NEXT WEEK

For the coming week, there are 3 things to keep an eye on.

• Last week, VIX remained elevated at the 13.5 levels. In the last few weeks, VIX has been very volatile and disruptive; and this is really blocking markets finding a clear bottom.

• On the Nifty, the 25,500 level is likely to be a stiff resistance, although 24,900 will be the immediate support for the Nifty. It has long term support at 22,500, but the undertone of the Nifty looks quite bullish.

• Sensex closed the week above 82,000, but the key resistance now shifts to 83,500 levels. Sensex found support in the 78,000-79,000 range. Rate cuts could hold the key to sentiments.