Market outlook for the next week (12-Aug to 16-Aug)

12 Aug 2024 , 10:34 AM

SECTORAL STORY IN THE WEEK TO AUGUST 09, 2024

The week to August 09, 2024 saw the Nifty and the Sensex closing sharply lower. The FPIs intensified their selling, emerging net sellers in the week to the tune of $1,479 Million, as they remained heavy net sellers on all days, expect Friday. The saving grace of the week was the big IPO inflows from Ola Electric and FirstCry, which mellowed the extent of FPI selling in the week. Here is a quick look at how the 20 key sectors performed in the week to August 09, 2024.

Sectoral Index	Weekly Returns	Index (09-Aug)	Index (02-Aug)
Nifty Healthcare	0.74%	13,940.15	13,837.30
Nifty FMCG	0.67%	62,157.35	61,745.15
Nifty MNC	-0.46%	30,470.10	30,612.05
Nifty CPSE	-1.05%	7,431.55	7,510.15
Nifty Oil & Gas	-1.25%	12,972.75	13,137.45
Nifty Mobility	-1.31%	21,866.32	22,157.32
Nifty Logistics	-1.33%	24,542.42	24,873.42
Nifty Automobiles	-1.43%	25,346.65	25,714.45
Nifty Realty	-1.44%	1,022.25	1,037.15
Nifty India Digital	-1.51%	8,887.70	9,023.90
Nifty Banks	-1.69%	50,484.50	51,350.15
Nifty IT	-1.73%	39,043.30	39,730.30
Nifty Private Banks	-1.82%	25,146.50	25,612.05
Nifty Non-Banks	-2.00%	24,853.04	25,361.19
Nifty Infrastructure	-2.27%	9,166.45	9,379.05
Nifty Consumer Durables	-2.40%	38,294.85	39,237.20
Nifty India Defence	-2.45%	7,228.49	7,409.75
Nifty Energy	-2.52%	43,216.05	44,334.25
Nifty PSU Banks	-2.82%	6,994.45	7,197.50
Nifty Metals	-2.97%	9,038.30	9,314.55

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 09, 2024. Out of the 20 key sectors, it was the loses that dominated. While 18 sectoral indices gave negative returns, for the week, only 2 defensive sectors gave positive returns for the week. The sentiments were broadly negative as most of the heavyweight sectors like banking, IT, oil & gas, and autos came under intense selling pressure.
• Let us start with the top gainers for the week. Nifty Healthcare and Nifty FMCG led the uptick in the market with 0.74% and 0.67% gains respectively. The remaining 18 sectors gave negative returns in the week, but some of the sectors like the MNC index managed to show some restraint in their fall. However, that was more because there were a number of common companies in the MNC index and the FMCG and healthcare indices.
• What about the sectors giving negative returns. There were a total of 18 sectors giving negative returns in the week with several heavyweights. Metals was down -2.97%. PSU Banks was down -2.82%, Energy down -2.52%, Defence down -2.45%, and Consumer Durables down -2.40%. The selling was prominent across all sectors that had rallied in recent weeks with only the more defensive sectors like healthcare and FMCG managing to deliver positive returns for the week. Out of the 18 sectors giving negative returns, 17 sectors fell more than 1% for the week, and within that list 7 sectors fell more than 2%.
• With only 2 out of 20 sectors giving positive returns in the week, the arithmetic average of returns of these 2 gaining sectors stood at a subdued 0.71%, while the arithmetic average of the 18 losing sectors stood at -1.80%. Compared to last week, the losses in the down-sectors was a lot more acute compared to the gains in the up-sectors.

FPIs were heavy sellers in the week, although the final figure looks less intense due to IPO flows. But, the big story was the sharp 50% spike in the VIX on Monday, which took the volatility index to above the 20 levels. Of course, towards the end of the week, the VIX did taper to the 15.4 levels, but it is still too high on an absolute basis to be able to justify any sustainable bounce in the markets. Buy on dips, may not exactly work at these VIX levels.

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

For the latest week to August 09, 2024, FPIs were net sellers to the tune of $(1,479) Million. FPIs turned net sellers last week, after being net buyers for 7 weeks in a row, and infusing $9.04 Billion into Indian equities. Here is what drove FPI sentiments this week.

1. The Monetary Policy Committee (MPC) of the RBI presented the third monetary policy of FY25. For the ninth time in a row, the RBI maintained status quo on policy rates in the August 2024 meeting. The RBI also maintained the stance of it is policy as “withdrawal of accommodation” and did not shift to neutral as some sections of the market were expecting. Clearly, the RBI now wants to wait for the Fed action in September before making its move. Interestingly, in the last two meetings, there were two dissenting notes from Jayanth Varma and Ashima Goyal asking for a 25 bps rate cut and shifting of stance to neutral. Incidentally, both had their last meeting this month as their 4-year term ends.
2. FPI flows were deeply in the negative during the month as the net selling stood at around $1.48 Billion in equities. However, the actual situation could have been much more intense had it not been for the FPI anchor flows into two major IPOs viz., FirstCry and Ola Electric. However, this FPI selling needs to be seen in context. In the 6 weeks running up to July 26, 2024, the FPIs had infused $9.04 Billion into Indian equities, so the selling of the last two weeks does look quite paltry in front of that.
3. Talking of IPOs, the week saw two mega IPOs going through. The Ola Electric IPO and the FirstCry IPO collected over ₹10,200 Crore in the IPOs. However, if you look at the market interest in the IPO, the total bids to the tune of ₹80,000 Crore were received in these two IPOs, indicating that despite the uncertainty, the IPO market continues to be robust. That shows that the FPI selling in the secondary markets could be less of an all-out sell-off and more of an allocation shift from secondary markets to primary markets.
4. The RBI kept status quo in the growth expectations for FY25 and also the inflation expectations. In fact, there was a concern that the RBI may raise its inflation expectations for FY25 from the current 4.5% to a higher level considering the pressure on food prices. However, that was not to be. The GDP growth rate was raised by 20 bps in June and hence no change was expected. That was maintained at 7.2% by the RBI in its August policy. But, there were two areas where the RBI, perhaps, missed an opportunity. The RBI was expected to have more on the falling CASA ratio of banks, but that was a cursory mention in the governor’s speech, highlight the risk of an ALM mismatch. Also, a lot more was expected in terms of managing the rupee amidst its steady weakening. However, that was also sorely missing.
5. The Hindenburg saga is not going away in a hurry and Hindenburg is targeting the SEBI chairperson this time. But, Hindenburg has lost a lot of its credibility in the last year and half after it could not produce any evidence of all its tall talk in the Adani issue. Clearly, the latest move would be a signal to SEBI to regulate irresponsible players like Hindenburg more strongly and either ban them or put a curb on their activities. Such baseless statements have not only damage to the credibility of Indian stock markets but has caused untold losses to the average retail investors. The sooner the regulators and the government act on such fringe players, the safer the markets would be. Even in the latest case, the allegations against the SEBI chair came only after SEBI issued a show cause notice to Hindenburg Research in the Adani case. This clearly highlights that Hindenburg is using publicity stunts to get a larger mindshare of the investors.
6. Oil remains a contentious commodity as it stands to be pulled by two diverse forces. During the week, the Brent Crude spiked from $76/bbl to near $80/bbl. On the one hand, the geopolitical tensions in the Middle East are boosting the price of war. Now it is not just between Israel and Gaza, but it is about the possibility of an all-out war between Iran and Israel. That could get much bigger very fast. On the other hand, two of the largest economies in the world (the US and China) are trying hard to fight off growth pangs. China has been struggling to revive growth for quite some time, while the US slowdown is a recent problem. The US slowdown fears were sparked by the weaker than expected labour data in the US. In a sense, oil will have to find a delicate balance between these contrasting forces at play.
7. Mutual fund flows in July 2024 were extremely robust across equity and debt. While debt funds saw net inflows of ₹1.20 Trillion, the equity funds saw net inflows of more than ₹37,000 Crore. Even the hybrid funds and passive funds saw strong inflows. The more important trigger was the funnel for such flows. In July 2024, the systematic investment plan (SIP) inflows touched a record ₹23,332 Crore, while the NFO flows were also robust (especially for thematic funds and multi-cap funds) at ₹16,565 Crore. These factors have ensured that even if FPI flows taper, domestic funds and the LIC have enough arsenal to continue to support the markets for a long time to come.

The week was about the RBI monetary policy and the rising uncertainty in global markets. For the coming week, the focus will be on key data points like consumer inflation, industrial growth (IIP), WPI inflation, and international trade.

STOCK MARKET TRIGGERS FOR COMING WEEK TO AUGUST 16, 2024

Here are some of the key stock markets triggers that can influence the direction of the stock markets in the coming week to August 16, 2024.

• Let us talk about the principal generic indices first. Last week saw the Nifty down -1.42%, Sensex -1.58% lower, and the NSE Next-50 down -0.83%. In terms of sectoral mix, barring FMCG and Pharma, all other sectors came under pressure. For now, it looks like this defensive trend will continue in the large caps. What about smaller indices? The Mid-cap index was -1.28% down, while the small cap index was -2.08% down last week. For now, it does look like alpha hunting could take a back seat for a longer period, especially given the recent risk triggers the market.
• The coming week will be the last big week for the quarter results of Q1FY25. The major large cap results this week include IRFC, IRCTC, Apollo Hospitals, PEL, Godrej Industries, Muthoot Finance, Hindalco, Hero Motocorp. Among mid-cap companies, the companies that will announce results this week include Nykaa, NMDC, IPCA Labs, Gujarat Fluoro, Eclerx, Suntech Reality, SJVN, RCF, Olectra Greentech. In addition, there are also several key record dates for dividend coming up, and this list includes. CAMS, ICICI Bank, India Pesticides, NHPC, Rossell India, UPL Ltd, Bandhan Bank, Styrenix.
• Let us now move to the big macro data story for the coming week. MOSPI is likely to announce India IIP growth for June 2024 (1-month lag) on Monday August 12, 2024. As per Bloomberg estimates, the IIP is likely to taper by 30-40 bps from the 5.9% reported in May-24. However, the real focus will be on manufacturing IIP. In addition, the CPI inflation will also be announced on Monday, which is expected to fall sharply from 5.08% to 3.65%. While WPI inflation will also be a key input for corporate costs, the CAD will focus more on the trade data. For July, it is likely to be wider than the $20.98 Billion trade deficit reported for June 2024.
• FPIs were net sellers to the tune of $1.48 Billion in the week to August 09, 2024. Next week, the concerns will be less on the budget and more on the prospects for the US economy and the colour of the Japan yen carry trade. The other macros in focus will be the price of crude oil and the rupee value. While oil is likely to hover around $80/bbl, the forex markets expect RBI support at 84/$.
• The markets will also be closely watching how the regulator and the government respond to the charges made by Hindenburg. Already, the SEBI chief has denied all allegations, but there could be some sense of panic in the markets overall. However, it could be more of a passing phase.
• Finally, let us turn to the key data points to watch in international markets. Key data points from the US next week will be Inflation expectations, consumer inflation, core PPI, FOMC speak, crude stocks, industrial output, housing starts, and Building permits. In other ROW triggers, the focus will be on GDP, IIP (Japan); Trade, GDP, IIP (EU); unemployment, IIP(China); CPI, GDP, IIP, Trade, Labour Productivity (UK).

Overall, the coming week promises to be heavy on data flows. Let us finally turn to the outlook for the Nifty and Sensex.

PARTING THOUGHTS ON NIFTY AND SENSEX NEXT WEEK

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

• Last week, VIX bounced sharply on Monday to above the 20 levels, although it did come down to over 15 by close. However, the undertone of the market has changed from a buy-on-dips market to sell-on rises market.

• On the Nifty, the 25,000 level is likely to be a stiff resistance, while the immediate support is placed at 23,800 with the long term supports at 22,500. Only below 22,500, the current rally price structure would get damaged for the Nifty.

• For the Sensex, it hit a barrier at 82,000 in the previous week, but the next big support to watch will be 79,000, and it is very close to that level now. The high levels of the VIX could be a concern for the indices.

The coming week could be decisive with many important data points likely to be announced.