Market outlook for the next week (09-Sep to 13-Sep)

9 Sep 2024 , 02:38 PM

SECTORAL STORY IN THE WEEK TO SEPTEMBER 06, 2024
The week to September 06, 2024 saw the Nifty and the Sensex closing with losses, largely on account of the last day selling in the stock markets. In fact, the markets were flat at the end of Thursday, and the entire losses of the week were due to the Friday fall. The fall on Friday was understandable as traders and investors chose to be light ahead of the critical jobs data to be announced by the US Bureau of Economic Analysis (BEA), towards the close of Friday. Eventually, there were no nasty surprises in the jobs data with unemployment falling 10 bps to 4.2%. FPIs were net buyers for the third week in a row in Indian equities and have now been net buyers to the tune of $12.5 Billion since the Modi 3.0 government too charge. Here is a quick look at how the 20 key sectors performed in the week to September 06, 2024, in terms of weekly returns.

Sectoral Index	Weekly Returns	Index (06-Sep)	Index (30-Aug)
Nifty Non-Banks	1.56%	27,251.11	26,833.44
Nifty Consumer Durables	0.53%	41,531.10	41,312.85
Nifty FMCG	0.18%	63,175.70	63,059.75
Nifty Healthcare	-0.39%	14,449.80	14,506.85
Nifty MNC	-0.86%	30,708.30	30,975.70
Nifty India Defence	-1.04%	6,856.74	6,928.69
Nifty IT	-1.31%	42,228.90	42,787.80
Nifty Private Banks	-1.40%	25,328.80	25,687.75
Nifty Mobility	-1.40%	22,035.82	22,349.60
Nifty Banks	-1.51%	50,576.85	51,351.00
Nifty India Digital	-1.57%	9,415.80	9,566.10
Nifty Logistics	-1.70%	24,578.75	25,003.83
Nifty Realty	-2.02%	1,032.10	1,053.40
Nifty Automobiles	-2.47%	25,527.15	26,172.80
Nifty Infrastructure	-2.57%	9,183.90	9,425.75
Nifty Metals	-2.60%	9,161.15	9,405.25
Nifty Oil & Gas	-3.21%	13,024.55	13,456.90
Nifty Energy	-3.53%	42,212.45	43,757.40
Nifty PSU Banks	-4.73%	6,655.05	6,985.80
Nifty CPSE	-5.32%	7,007.70	7,401.30

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 September 06, 2024. Out of the 20 key sectors, the losers dominated, largely due to the Friday effect. While only 3 sectoral indices gave positive returns for the week, a total of 17 sectors recorded negative returns. The sectors that gave positive returns showed only marginal gains and was more due to the shift to defensives. The losses were quite deep with 8 out of the 20 sectors falling more than -2% for the week.
• Let us start with the story of the top gaining sectors for the week. Nifty non-banks with 1.56% gains, Nifty Consumer Durables with 0.53% gains, and Nifty FMCG with 0.18% gains; were the only sectors in the green. In the case of NBFCs outperforming, there a number of sub-stories. South based NBFCs like Chola Finance and Shriram Finance have been doing exceptionally well. The NBFCs from the Bajaj group gained due to the likely impact of the listing of Bajaj Housing Finance. Insurance companies are now being seen as a defensive play in the non-banking finance sector.
• What about the sectors giving negative returns. There were 17 sectors giving negative returns in the week, out of which Nifty India CPSE was the big loser at -5.32% followed by Nifty PSU Banks at -4.73%. Clearly, the government stocks that had driven the rally in the last one year, are now seeing profit taking. However, the underlying story and the valuation argument still remains quite strong for these PSU plays. Nifty Energy and Nifty Oil & Gas were among the major losers giving up more than 3% for the week. While Reliance came under selling pressure in the week, the pressure also came from a sharp fall in crude prices. That is likely to depress the realizations of upstream companies as well as the gross refining margins (GRMs) of oil refining companies.
• With 17 out of 20 sectors giving negative returns in the week, the arithmetic average of returns of these 17 losing sectors stood at -2.21%, while the arithmetic average of the 3 gaining sectors stood at 0.76%. what stood out during the week was the intensity of selling in the cyclical sectors as the week saw a clear shift from the cyclicals to defensives in terms of market performance.

During the week, Nifty VIX spiked to above the 15.5X levels; which rules out any buy-on-dips strategy on account of low VIX levels. For that, the VIX has to settle closer to 11X levels. However, with the current domestic and global uncertainty, that looks unlikely to happen.

WEEK THAT WAS; THE GOOD, THE BAD AND THE UGLY
The week started on a tentative note ahead of the US jobs data. That was always supposed to be the most critical data point ahead of the Fed meeting on September 18, 2024. The jobs data was largely in line with expectations, but that opens the doors to a more aggressive rate cut in September, and probable front-loading of rate cuts. Here are some of the key events that decided the course of the week.

1. The US Bureau of Labour Statistics (BLS) announced unemployment data for August 2024. The unemployment rate at 4.2% was 10 bps lower than the previous figure of 4.3%, but the absolute numbers of unemployed are almost the same. It goes to underline that the labour market has suddenly turned into an oversupply market, which will eventually result in lower purchasing power and lower wage increases.
2. Apart from the unemployment numbers, there were also some concerns on the revision in previous non-farm payroll additions. The non-farm payroll additions were higher at 142K in August compared to 114K in July. However, the non-farm payroll additions for June and July were lowered sharply in the revised estimates, which opens August additions also to downgrades. That means, job additions are really struggling.
3. The CME Fedwatch itself became a major news item this week with the US jobs data hinting at the need to front load rate cuts. The CME Fedwatch has assigned a 100% probability to 25 bps rate cut and 70% probability to 50 bps rate cut in the September 2024 meet. In addition, CME Fedwatch is anticipating rate cuts of up to 100 bps by end of 2024 and up to 225 bps by end of 2025. The immediately focus will be on whether the Fed cuts rates by 25 bps or by 50 bps on September 18, 2024.
4. FPI flows were robust in the week at $1.31 Billion as the foreign investors were net buyers in equities on four out of the five days in the week. This is the third week in a row that FPIs have been net buyers in equities. In the three months since the Modi 3.0 government took office, the FPIs have already infused $12.5 Billion into Indian equities, despite the interim uncertainty in early August around the US jobs data. For the month of August 2024, FPIs infused $876 Million net. The inflows were robust in defensive sectors like healthcare, consumer durables, consumer services, information technology (IT), and fast moving consumer goods (FMCG). However, the selling was prominent in sectors like BFSI, metals & mining, automobiles, realty, cement, and power. There appears to be a shift in FPI sentiments from cyclical industrials to defensives.
5. The Ministry of Defence approved 10 major defence proposals valued at over ₹1.45 Trillion. These orders will be towards the procurement of combat vehicles, air defence fire control radars, Dornier Aircraft, and offshore patrol vehicles. These additions are intended to improve India’s defence preparedness, especially in the light of the worsening geopolitical situation globally. Interestingly, 90% of these orders will be farmed out to Indian defence companies, hinting at substantial top line gains for defence plays. The impact will mark the revival in sentiments around defence stocks.
6. The big news in the week was the sharp fall in the price of Brent Crude. In the last couple of weeks, Brent has lost nearly $10/bbl. The price of Brent crude cracked sharply to $71/bbl, after opening the week at $77/bbl. The sharp fall was triggered by recent reports published by Citigroup and Bank of America estimating Brent Crude to go down all the way to $60/bbl. That led to rapid unwinding of positions in the oil futures market. Citi and BOFA have cited weak oil demand, an oversupplied oil market, a possible slowdown in economic growth in the US and China. All these factors are likely to be bearish for oil prices. However, it must be noted here that being a net importer of crude, the sharp fall in crude prices would be a blessing in disguise for the Indian economy, especially in reining its current account deficit.
7. During the week, the US bond yields and the US dollar index fell sharply on the back of expectations that the Fed may be more aggressive on rate cuts. The expectation is also that the Fed may start its September policy with 50 bps rate cut, instead of just 25 bps. This dovishness led to the fall in the US 10 year bond yields and in the dollar index. During the week, the yield spread (10-year versus 2-year) also returned to positive territory after a long time.
8. The IPO market is bracing up for some very big action in terms of the size of issues likely to hit the market. The coming week will see the ₹6,560 Crore Bajaj Housing Finance IPO opening for subscription. The anchor allotment has already collected ₹1,757 Crore across 104 anchor investors, showing huge institutional appetite. Among other big issues on the anvil are the ₹9,950 Crore IPO of Hexaware Ltd, which will be an OFS by Carlyle Fund. In addition, there are also big IPOs expected to come from Zepto and HDB Financial (the NBFC arm of HDFC Bank) in the next few months.

With the US labour data out of the way, the attention will shift to how the US consumer inflation for August pans out. Of course, the big event will be the US Fed meet on September 18, 2024. The markets will be closely watching the language and the outlook given by the Fed, apart from the rate decision.

STOCK MARKET TRIGGERS FOR COMING WEEK TO SEPTEMBER 13, 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 13, 2024.

• The generic indices fell sharply last week due to the Friday effect. Nifty fell -1.52%, Sensex -1.43%, and NSE Next-50 fell -1.09%. Since, the selling was largely about Friday selling, it may not sustain into next week. While the mid-cap index was -1.32% down; the small cap index was surprisingly down just -0.16%. The coming week could see traces of alpha hunting in small cap stocks.
• In key corporate actions in the coming week, investors can look forward to the dividend record date for IGL, Techno Electric, HUDCO, Poddar Pigments, NMDC, Amines & Plast, Remsons during the week. In addition, markets are also likely to react to he US jobs data which was announced late on Friday, after the Indian markets had closed.
• The last major data point ahead of the Fed meet; the US consumer inflation, will be announced by the US BLS on September 11, 2024. The US consumer inflation is expected to taper by 30 bps to 2.6% as per Bloomberg estimates, almost at par with PCE inflation.
• There are some important data points in terms of India macros. The India August CPI inflation will be announced on September 12, 2024; and it is likely to bounce from the surprising lows of 3.54% last month. Also, the IIP number will be reported this week, wherein the market focus will be more on manufacturing IIP. Also, the WPI inflation for August will also be announced on September 13, 2024. Last month, the WPI inflation bounced to 2.04%. The focus will be on manufacturing WPI, as it impacts input costs.
• Oil and FPI flows will continue to be key triggers for markets. FPI flows will be in focus next week after FPIs were net buyers for 3 weeks in a row. They have already infused $12.5 Billion into Indian equities last 3 months since Modi 3.0 took charge. Brent will be in focus next week, having fallen to $71/bbl amidst oversupply fears. With Citi and BOFA setting a target of $60/bbl, the pressure is likely to be on and even positive for India.
• In the coming week, a total of 4 mainboard IPOs will raise a sum of ₹8,390 Crore, led by Bajaj Housing. Other mainboard IPOs include Tolins Tyres, Kross and PN Gadgil Jewellery. In addition, there will also be 2 mainboard listings in the week. This could set the tone for some mega Billion dollar IPOs in the rest of 2024.
• Finally, for some key global data points. Key data points from the US include CPI Inflation, Atlanta Fed GDP, inflation expectations, Crude stocks, core PPI, jobless claims, Fed balance sheet. Key data points from the rest of the world (ROW) include ECB Rates, IIP (EU); Current Account, GDP, IIP, BOJ Speak (Japan); CPI, PPI, Trade, IIP (China); and Jobs, GDP (UK).

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 spiked sharply to 15.5 levels. In the last few weeks, VIX has been very volatile and disruptive; and this actually stopping a buy-on-dips market.

• On the Nifty, the 25,000-25,500 range is likely to be a stiff resistance, although 24,700 will be the immediate support for the Nifty. It has long term support at 22,500, but the undertone of the Nifty may depend on the data flows this week.

• Sensex closed the week above 81,000, and the key resistance remains its old problem area of 82,000 levels. On the downside, the range of 78,000-79,000 is likely to be the support level for the index.

The action now shifts to the US Fed and its guidance on Fed rates trajectory!