Market outlook for the next week (22-Jul to 26-Jul)

21 Jul 2024 , 09:30 AM

SECTORAL STORY IN THE WEEK TO 19-JUL

The week to July 19, 2024 saw the Nifty and the Sensex closing almost flat, but that did not reflect the tumult within. While the large caps were largely flat to positive in the week, the bid damage was seen in the smaller stocks; with the Nifty Next 50, Nifty Mid Cap and the Nifty Small Cap seeing deep cuts. FPI flows into equities were again robust at $1,845 Million in the week, resulting in an infusion of $8.65 Billion in the last 6 weeks into Indian equities. Among the heavyweights, IT and FMCG repeated the rally of the previous week, while the banks supported with a flat close. Here is a quick look at how the 20 key sectors performed in the week to July 19, 2024.

Sectoral Index	Weekly Returns	Index (19-Jul)	Index (12-Jul)
Nifty IT	2.31%	39,923.30	39,023.00
Nifty FMCG	2.28%	61,087.90	59,725.75
Nifty PSU Banks	1.38%	7,302.60	7,203.00
Nifty Realty	0.27%	1,096.20	1,093.20
Nifty Banks	-0.03%	52,265.60	52,278.90
Nifty India Digital	-0.08%	8,761.70	8,769.10
Nifty Private Banks	-0.53%	26,008.00	26,146.80
Nifty Healthcare	-0.59%	12,967.65	13,044.10
Nifty Automobiles	-0.72%	24,963.35	25,145.45
Nifty Oil & Gas	-0.98%	12,729.90	12,855.50
Nifty Non-Banks	-1.19%	24,856.21	25,155.62
Nifty Logistics	-1.27%	23,826.56	24,133.16
Nifty MNC	-1.34%	30,454.95	30,869.90
Nifty Mobility	-1.45%	21,195.48	21,506.69
Nifty Infrastructure	-1.66%	9,122.35	9,276.30
Nifty Energy	-1.83%	42,062.80	42,846.35
Nifty Consumer Durables	-2.52%	37,598.90	38,570.85
Nifty CPSE	-3.23%	7,072.90	7,309.10
Nifty Metals	-4.65%	9,256.30	9,708.20
Nifty India Defence	-8.60%	7,485.80	8,190.29

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 July 12, 2024. Out of the 20 key sectors, only 4 sectoral indices gave positive returns, with 16 sectors giving negative returns. In fact, most of the infrastructure and PSU related stocks caused most of the damage during the week; including CPSE index and the Defence Index.
• Let us start with the top gainers for the week. Once again, IT and FMCG were the top gainers with weekly gains of 2.31% and 2.28% respectively. The other important sector that led the gains was PSU banks at 1.38% for the week. While IT gained from strong Infosys numbers and positive twist to guidance, FMCG gained from expectations of a strong revival in rural demand. Oil story came under pressure during the week, while autos continued to be tepid among the large caps. IT and FMCG stocks did very well in the mid-cap space too.
• There were a total of 12 sectors giving negative returns in the week with defence the worst hit, contracting by -8.60% on concerns over valuations and heavy mutual fund selling. Metal stocks fell by -4.65% on the back of concerns over weak Chinese demand. However, the big damage was in infrastructure and the CPSE related theme as there are concerns that these government owned stocks may have run up too much and that the full budget this week may not be too supportive of capex.
• With only 4 out of 20 sectors giving positive returns in the week, the arithmetic average of returns of these 4 gaining sectors stood at 1.56%, while the arithmetic average of the 16 losing sectors stood at –1.92%. Compared to last week, the losses in the down-sectors are a lot more than the gains in the up-sectors. Out of the 20 sectors overall, only 2 sector reported more than 2% returns for the week. On the downside, 4 sectors fell more than 2% during the week, with Defence falling more than 8%.

If alpha hunting took a back seat in the previous week, the latest week saw large caps firmly and decisively emerging as the favourites of Indian investors.

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

For the latest week to July 19, 2024, FPIs were net buyers to the tune of $1,845 Million. For 6 weeks in a row, the FPIs have been net buyers in equity; infusing $8.65 Billion. However, the week was largely determined by pre-budget expectations. The full budget to be presented on 23-Jul is likely to set the tone for the reforms agenda of Modi 3.0 government. Here is what the previous week was all about.

• Pre budget action was visible as there was selective buying by the FPIs in IT and FMCG. These are two sectors that the FPIs have been generally cautious in the last few months, but not expect these stocks to play catch up. There are some basic expectations from the Union Budget. For starters, the budget is likely to reiterate its reformist; something which even the PM has made adequately clear. Secondly, the benefit of ₹2.11 Trillion RBI dividend, the government may hold the fiscal deficit at around 5.0% for FY25. The big question is what happens to the capex story.
• FPI flows were extremely robust in the week running up to the Union Budget. For the week to July 19, 2024, the FPIs infused $1.85 Billion into Indian equities, taking their total India equity infusion in the last 6 weeks to $8.65 Billion. FPI flows are key since during the election uncertainty, the FPIs were persistent sellers. The buying shows the FPIs regaining confidence in the India story. However, a lot will depend on how the flows pick up post the Union Budget.
• Wholesale Inflation (WPI) at 3.36% has shown a sharp spike in the last five months. The spike in WPI inflation was triggered by a mix of higher wholesale food prices and a spike in manufacturing costs. The problem is that the spike in manufacturing cost is likely to exert pressure on the cost structure of Indian companies and put further pressure on their operating margins.
• The rupee continued to weaken during the week even going beyond 83.7/$. The weakness has been due to a variety of factors. There has been dollar buying by the RBI and that has put pressure on the rupee. In addition, the US dollar has been oscillating between strength and robustness. That has also kept the Indian rupee under pressure. Above all, the first quarter trade data has hinted at the full year current account deficit for FY25, being sharply that the FY24 level of 0.7% of GDP. That is putting some subtle pressure on the Indian rupee.
• Trade data for June 2024 shows the merchandise deficit narrowing, leading the overall deficit also lower. The merchandise trade deficit narrowed from $23.8 Billion in May 2024 to $20.98 Billion June 2024. It is just that the global trade movement crisis has hit Indian imports a lot more than it has hit Indian exports. The overall trade deficit, after adjusting the services surplus, was also lower at $8 Billion in June 2024 compared to $10.90 Billion in May 2024. The big positive hint was that the export basket in June 2024 was dominated by items up the value chain like engineering goods and electronic goods.
• It was another encouraging week for IT companies. If TCS turned the sentiments positive last week, it was the turn of Infosys in the current week. The week saw Infosys doing better than street estimates. Sequential profits were up by 4% and the guidance for constant currency (CC) growth in revenues was rally robust at 3-4%, as compared to just 1-3% in the previous quarter. Infosys also reported an improvement in the EBIT margins by 100 bps, indicating that frontline IT stocks are back in the fray. Not surprisingly, the IT stocks have been the stars of the stock market in the last 2 weeks.
• After the initial hype and hoopla and the subsequent unravelling of the edtech story in India, it finally looks like endgame for Byju’s. Once revered as one of the most celebrated edtech players in India; Byju’s has now been referred to insolvency with the BCCI petitioning against Byju’s for their dues to BCCI on sponsorship rights. The NCLT has, for now, accepted the referral of Byju’s to insolvency. It may be recollected that, the ICC T20 league was once sponsored by Byju’s. In the last few months, Byju’s has been under debt and cash flow pressures, resulting in aggressive shutting down of business lines and retrenchment of staff. Being referred to NCLT means; Byju Raveendran loses control of the company as it now comes under the supervision of the insolvency Resolution Professional (IRP). Byju’s has called for an urgent hearing at the NCLT Appellate Tribunal (NCLAT), but it remains to be seen if it can really make any difference to the fortunes of Byju’s

The action will now shift to the full budget presentation in the coming week.

STOCK MARKET TRIGGERS FOR COMING WEEK TO JULY 26, 2024

Here are some of the key stock markets triggers that can influence the direction of the stock markets in the coming week to July 26, 2024.

• It was flat close for the major the principal indices but there was pressure on the smaller indices. Nifty closed the week +0.12% up and Sensex closed +0.11% However, among other indices; the Nifty Next-50 closed -3.23% down, the Mid-cap index closed the week -2.21% lower and small cap index also closed -2.91% lower. The week saw a shift from the mid-sized companies to the large sized companies and that is likely to repeat in the coming week also.
• With the results season entering the third week, there are key large cap results expected in the coming week; which include Hindustan Unilever, Bajaj Finance, Bajaj Finserv, Axis Bank, Nestle India, Power Grid, Reddy Labs, and ICICI Bank. Some of the key mid-cap results for the week include ICICI Prudential Life, Allied Blenders & Distillers, IDBI Bank, Suzlon Energy, Indraprastha Gas Ltd, Torrent Pharma, JSPL, Ashok Leyland, etc.
• The big event for the week will be the full Union Budget 2024-25 to be presented on Tuesday July 23, 2024. Of course, the focus of investors will be on whether the reforms process will sustain, whether the fiscal deficit outlook is brought down to 5% or lower, whether the government will focus on boosting rural demand and, above all, if the government is likely to do a rethink on its capex spending growth for FY25?
• There are two big triggers from the US markets in the coming week. US GDP final estimate of Q1-2024 to be put out on Thursday with the GDP growth likely to be rerated from 1.4% to 1.9% in the final estimates for Q1. Also, the PCE inflation for June 2024 is slated to be lower than 2.6%, in line with consumer inflation. These two data points are likely to have a bearing on the Fed plans to cut rates in September 2024.
• For the coming week, it remains to be seen if the FPI flows continue to be positive, after these FPIs infused $8.65 Billion in the last 6 weeks. Focus would also be on the USDINR, which weakened beyond 83.7/$ for the week, largely on higher CAD expectations.
• The IPO action is likely to be limited to just one mainboard stock in the coming week. Sanstar Ltd is likely to close its IPO this week and also list towards the end of the week. However, the real action would be in the SME IPO segment with 8 SME IPOs opening for subscription next week and 7 SME IPOs listing on the bourses.
• Finally, for the key global data points. Key US data points include Existing home sales, API stocks, Q1GDP, Q2 Atlanta Fed GDP estimate, PCE inflation, PMI flash, consumer spend. In ROW data, focus will be on Jibun PMI Flash (Japan); Monetary Survey, Consumer Confidence, PMI Flash, HCOB, Inflation expectation (EU).

Let us finally turn to what all these numbers mean for the outlook for Nifty and Sensex in 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 was stable at around 14.3-14.5 levels; almost the same as the pervious week. Currently, global markets are in a state of flux, so traders have to be cautious. Markets will be comfortable if the VIX stays in the range of 12 to 13.
• For the Nifty, any breach below 24,500 is likely to open downsides to 24,000. However, call and put options data is still seeing the markets positive after the budget with likely resistances for Nifty only seen at 25,500 levels.
• For the Sensex, it held 80,000 for the week, although 81,000 still remains elusive on closing basis. A lot will depend on the tone of the budget and reformist noises would help the Sensex to clear hurdles.

For now, the next big trigger will be the full budget, and the hope is that the government will not let go its reforms leverage!