If the previous week was a sampler, the latest week to September 08, 2023 was a week that saw a sharp rally of nearly 2% in the Nifty. In fact, during the latest week the Nifty effortlessly eased past the key resistance levels of 19,600 and 19,800. Now the Nifty is just about 170 points shy of a new high and there is a high probability of the Nifty making it past 20,000 in the coming week. However, as we have often seen in the markets, there is many slip between the cup and the lip and hence we must treat more carefully about getting too optimistic.
In terms of sectoral performers, it was the heavyweight sectors like banks, oil and IT that led the Nifty higher. Banks gained in the last 2 days of the week after the RBI announce that it would phase out the incremental CRR (I-CRR) by early October 2023. The I-CRR was introduced in the August monetary policy to suck out the liquidity induced into the system by the surrender of the Rs2,000 denomination notes. But with that absorption almost done, banks were again on the radar as credit now looks to get a boost. IT stocks were a bet on the weakening rupee, as even the FPI flows have indicated. Oil & gas stocks gained from the Brent Crude prices crossing $90/bbl as that promises higher realizations per barrel for upstream companies and higher GRMs and inventory translation gains for refiners. Let us first look at the key drivers of the markets in the previous week.
News flows from the previous week to September 08, 2023
There were 6 major triggers that influenced the Nifty movement during the week just gone by.
- It was a tepid week for macro data flows with most of the key data points already out. However, the big news was the phased removal of the Incremental CRR from the system. This is critical for 2 reasons. Firstly, it indicates that the RBI is now much more comfortable on the liquidity regulation front. Secondly, it also underlines that banks can have additional resources at their disposal to create credit. Not surprisingly, banking stocks got a big boost and due to their weight, they boosted the Nifty also higher.
- The week again saw a sharp spike in the oil prices and weakening of the rupee to settle once again beyond the 83/$ level. This is likely to have two contrasting effects on the Indian economy and the markets. Let us look at the positive spillover first, and that has to do with the sectoral impact. Higher crude prices are positive for the upstream oil extractors like ONGC and OIL as it means higher realization per barrel. At the same time, it also means that the refining companies can expect higher gross refining margins (GRMs) as well as better translation gains on their oil inventories. This was the positive side of the oil price boost. On the rupee front, the positive boost came from higher demand for IT and pharma stocks, which are seen as dollar defensive bets.
- Having seen the positive side of the spike in crude prices and the weaker rupee, let us also look at the downside risk. Higher oil prices tend to widen the trade deficit and the current account deficit. This will only get accentuated as the exports of goods and services are struggling in the midst of weakening global demand. Oil spike also impacts inflation. One can argue that the weight of crude oil in the CPI inflation basket is just 2.3%, but that is misleading since crude oil has strong externalities and gets into all prices. On the rupee front, weaker rupee can technically boost exports, but in the current scenario may not help much. On the contrary, it is likely to discourage FPIs as they would rather steer clear if the portfolio cannot defend dollar returns.
- If you look at the FPI flows data in the month of August, the net inflow may have been just about $1.48 billion. However, the net sectoral flow into power and capital goods stocks stood at more than $2 billion. What is driving this buying is the mega orders and investments that Indian companies are planning. For example, L&T go a record $4 billion order from Saudi Aramco, which will be its largest single order till date. At the same time, Reliance and Tatas are planning to tie up with global chipmaker NVIDIA for developing the AI (artificial intelligence) infrastructure in India. This could be a game changer and trigger additional capex. Above all, Adani is again going aggressive on green ammonia and green hydrogen while the Reliance group is rolling out semiconductor plans for India by signing on a technology partner for a start. The big news for the week was that capex is happening in a very big way and Indian companies are leading.
- One of the best examples of robust markets is based on how effectively the big plans are able to get funding. That was evident in the latest week. Reliance Retail completed the sale of 0.99% stake in the company to Qatar Investment Authority (QIA) for $1 billion. That values the retail business of Reliance alone at $100 billion, nearly twice the valuation that the retail business got in 2020. That also means that the sum of total parts (SOTP) valuation of Reliance should be much higher than the $200 billion that it is quoting at today. In a market where, what is good for Reliance is good for India, this is likely to be a game changer deal for the markets.
- Finally, the one event that silent engendered the feel-good factor in the Indian markets was the G-20 Summit to be conducted in Delhi. There were initial hiccups with China and Russia opting to stay out. However, that has not deterred India from making the G-20 Summit a success, even getting Biden’s support for a permanent seat on the UN Security Council. The Summit has been a major morale booster for Indian economy and India’s role in the emerging global equations. While it may not have any immediate market repercussion, the feel-good factor cannot be denied.
Going ahead, the focus will be on the net impact of all that is happening in the US and in India. The coming week will be all about data flows on the inflation and the growth front and its implications for the trajectory of monetary policy; both in the US and in India. We have to await the colour of data for that.
Stock market triggers for the coming week to September 15, 2023
The coming week from September 11, 2023 to September 15, 2023 is likely to be a very busy week in terms of data flows. Here is a look at the data sheet for the coming week, but first let us start with the c9olour of the market moves.
- It was a week when Nifty breached key resistance levels. Nifty closes the week +1.98% higher while the Nifty Next-50 closed +2.93% higher. Both the indices are likely to be beneficiaries from the feel good factor generated by the G-20 Summit. At the same time, the mid-cap index rallied smartly by +3.88% and the small cap index by +3.44%. Clearly, the alpha hunting is still on and smaller indices at new highs is a big positive for markets.
- In big data flows this week, India consumer inflation will be put out on Tuesday, September 12, 2023. At the same time ,the WPI inflate will also be put out on Thursday, September 14, 2023. The expectation is that CPI inflation could slightly taper to 7%, while WPI inflation could bounce back into positive zone. Overall, the tone will only sharpen the hawkish instincts of the RBI.
- With the GDP growth at 7.8% for Q1, India remains the fastest growing large economy by a margin. However, Q1 GDP was all about services boost as manufacturing lagged, which is why the IIP data on the coming Tuesday assumes significance. IIP growth data for July is expected to improve from 3.7% to 4.8% yoy, on the back of boost from the manufacturing sector and capex readings. That is likely to be a positive and may push the RBI to be patient with status quo on rates for a tad longer.
- From the perspective of FPI flows, the August US inflation to be put out by BLS on Wednesday, September 13 will hold the key. Now, as per Bloomberg estimates, the US consumer inflation is expected to rise from 3.2% to 3.6% raising the possibility of rate hikes in September policy. FPI flows fell to a fourth of the May to July levels in August and September has started on a negative note. That is where the US inflation data and the rate guidance of the Fed will hold the key.
- India trade data on imports and exports will be announced on Friday. The trade deficit is likely to remain flat at around $21 billion as exports and imports are likely to be under pressure. However, rising oil prices could spoil the game. The focus will be less on the merchandise trade deficit but more on the services trade surplus, which has been playing the role of offsetting the goods deficit in recent months.
- Oil and rupee will continue to hold sway in the coming week. Oil prices will be the big data point to watch with crude above $90/bbl. For now, the supply side remains under stress and that will help the OPEC and Russia to dictate terms. That is also likely to weaken the Indian rupee as well the strength in the dollar index (DXY).
- In the coming week, don’t miss the IPO action as it promises to be a busy week. The mainboard IPOs of RR Kabel, SAMHI Hotels and Zaggle Prepaid Ocean will open for subscription next week, while Rishabh and Ratnaveer will list on the bourses. Of course, there is going to be the share of SME IPOs also in the fray.
- Finally, for the global data triggers for the coming week from key markets. Major data points from US markets will be consumer inflation, API crude stocks, PPI, retail sales, jobless claims, industrial production, and capacity utilization. In rest of the world, focus will be on IIP, ECB rates and Trade balance in the EU region. In Japan, the focus will be on IIP, PPI and machine tools orders, while key data from China will include vehicle sales, unemployment, IIP and retail sales
It promises to be an action-packed week, but the big triggers will be the inflation and growth numbers.
Where is the market headed in the coming week?
Nifty options data indicates support at 19,600 levels and target of 20,000. There has been a substantive change in the Nifty undertone in the last one week. With low VIX and the positive sentiments from the G-20 Summit, the Nifty could test 20,000 levels. Even if one looks at the F&O options accumulation data, the put writing is heavy at 19,500 and 19,600 while the call writing is aggressive at 20,000 levels. The F&O data is broadly hinting at a similar positive view for the Nifty in the coming week.
The coming week is a data packed week so the eventual market movement will be the sum total of all these data interplay. The undertone remains strong, although the undertone is that inflation should not get out of control. FPI flows may be important, although not too material. The story next week will revolve around inflation management.
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