Market outlook for the next week (July 24 to July 28)

23 Jul 2023 , 06:37 PM

It was an exciting week for the Nifty when it got tantalizingly close to the 20,000 mark. In fact, it just fell about 10 points short of the 20,000 mark before the sharp correction on Friday took the markets lower. However, despite the Nifty correcting by 234 points on Friday and the Sensex by 888 points, the generic indices like the Nifty and the Sensex closed the week with gains of close to 1%. Infosys was the stock that pulled down the Nifty on Friday after it gave an inordinately weak guidance in terms of constant currency (CC) revenue growth. Of course, the big event to look forwards to in the coming week will be the all-important meeting of the Federal Open Markets Committee (FOMC). While a rate hike of 25 bps is already factored in by markets, the language and the minutes of the meeting will assume greater significance as economists rates to peak after the July hike. We have to wait and watch how this particular data flow pans out.

News flows from the previous week to July 21, 2023

There were 5 major news items that influenced the Nifty movement during the week just gone by.

1. In the absence of macro data, the focus was on corporate news. HDFC Bank relisted during the week with its expanded capital (including HDFC Ltd). At the current market cap of $177 billion, HDFC Bank is the fourth largest bank in the world by market value. The stock has held up post-merger and helped the Bank Nifty to gain this week. 

    

2. The Reliance demerger of Jio Financial became effective on July 20, 2023. The price of Jio Financial was discovered at Rs261.85 per share at the special 1-hour pre-trading session. This is nearly 60% higher than the price that the markets were pegging. This led to net value creation for the shareholders of RIL and boosted the oil & gas index.

    

3. The week saw some key results. Reliance saw a fall in net profits yoy. While retail and digital performed well, the O2C business came under pressure. ICICI Bank flattered the street with 40% growth in net profits while HUL saw net profits grow by just 3% on higher costs. Also, Infosys disappointed with sharply lower constant currency guidance.

    

4. FPI flows sustained in the week at $1.60 billion taking the FPI inflows into equities to $5.3 billion in July 2023. This is the third consecutive month of FPI flows in excess of $5 billion. Flows from FPIs continued to gravitate towards the BFSI space and the Bank Nifty ended up being the top performing index for the week with 2.8% positive returns.

    

5. In a major feel-good news during the week, the Singapore government owned Temasek has committed to enhance its India equity portfolio by $10 billion over next 3 years. Temasek’s share of India in the global portfolio has gone up from 3% to 6% in last 3 years and it now plans to take the India share up to 10%, largely in cutting edge sectors.

Of course, there have been some concerns too. Firstly, the rainfall deficiency has been covered, but paddy sowing has been impacted and that is likely to have a sustained impact on food inflation. Secondly, crude oil closed the week decisively above $81/bbl amidst concerns over falling US inventories and OPEC supply cuts. Lastly, with the Nifty and Sensex at all-time highs, one cannot totally rule out bouts of profit booking in the market. For now, mutual funds and FPIs are flush with funds, but equations can change at short notice.

Stock market triggers for the coming week to July 28, 2023

Here are some key stock market triggers to watch out for in the coming week, which could impact the colour and direction of the market move.

• Nifty and Sensex continued to rally, having gained nearly 9% since the start of May 2023. For the week, Nifty gave +0.92% returns and the 20,000 level is likely to be a stiff resistance to break for now. Action in the mid-caps and small caps is continuing with gains of +0.74% and +1.82% respectively. For now, mutual fund liquidity is driving the mid-caps and small caps higher as multi-cap funds and flexi-cap funds look to make the best of alpha opportunities.

   

• The coming week will, once again be the week of big results. Among the large cap companies, some of the key results to be announced include Tata Steel, HDFC AMC, Tata Motors, SBI Life Insurance, Bajaj Auto, Bajaj Finance, Axis Bank, Reddy Labs, Nestle and IOC. There are also some interesting mid-sized companies to announce results this week and these include names like TVS Motors, Canara Bank, Tata Consumer Products, Indus Towers, Marico, Deepak Nitrite, Exide, and M&M Finance.

   

• The coming week will also be a week of weekend results reactions. Banking results of ICICI Bank, Kotak Bank and Axis Bank continued to report strong numbers on the NII growth front and the NIM front. However, Reliance Industries reported lower profits in the quarter due to pressure in the oil to chemicals (O2C) business. However, the good performance of digital and retail and the Jio Finance demerger should compensate.

   

• It was a mixed week for the foreign hand. FPIs infused $1.6 billion in the week and $5.3 billion in July so far. That has been virtually relentless. However, the Crude prices closed the week above $81/bbl and anything above $80/bbl is a worry for India in terms of its trade deficit, fiscal deficit, and operating costs of companies. This led to the rupee being lacklustre against the dollar as the crude concerns offset the FPI flow gains.

   

• Perhaps, the biggest event of the coming week will be a global event. The US Fed meeting on July 26, 2023 will be critical for rates trajectory. If you go by the CME Fedwatch probabilities, then a 25 bps rate hike looks inevitable in July. However, there are also strong expectations from economists that the Fed may call a halt to rate hikes at the range of 5.25%-5.50% and prefer to let the lag effect work to protect growth.

   

• Core sector output to be put out on Friday July 28, 2023 for June month. Core sector output is normally announced with a lag of one month. In the last few months, cement, steel, fertilizers, and power have done extremely well and that trend is likely to continue in terms of output growth. Oil extraction and oil refining are likely to be under pressure due to pressure on gross refining margins.

   

• The IPO market is once again seeing action. On the mainboard this week, Yatharth Hospital IPO will open for subscription while Netweb Technologies will list on July 27, 2023. Apart from these 2 mainboard IPOs, there are a total of 4 SME IPOs on BSE and NSE opening for subscription next week. While SME IPOs are gradually building size due to robust demand, they have dominated the number of IPOs in this year so far.

   

• What is the technical and data-driven outlook for the Nifty next week? Nifty could be rangebound next week since it is already in uncharted territory and should face some stiff psychological resistance at the 20,000 levels; especially after the very rapid rally. However, with the VIX under 11.5 downsides would still be limited. This will necessarily make it a largely rangebound market next week with a buy-on-dips flavour to it.

   

• Finally, let us look at some key data points from the US and other major influential economies. The key data points from the US markets to be keenly watched this week would include the FOMC statement, composite PMI, API stocks, building permits, new home sales, Q2 GDP, durable orders, and jobless claims. In the rest of the world data flows, investors can look out for EU PMI, and ECB policy. In Japan, the focus would be on PMI, Core CPI, BOJ Outlook, and BOJ Rates; Finally, the data focus in the UK will include the composite PMI, Industrial Trends Orders etc.

In terms of domestic macro data flows next week, there is not much apart from the core sector and the forex reserves data. At a global level, the Fed meet on July 26, 2023 and other key data points from the US like PCE inflation and GDP will be material. Of course, the FPI flows and USDINR will also be key factors, apart from quarterly results. 

How we see markets shaping up in the coming week

In the last 4 weeks, the Nifty has seen a frenetic rally from around the 18,500 levels to the 19,980 levels with virtually little friction. It has almost traversed over 1,400 points led by constant sector rotation and strong FPI flows. It is now at the crucial 20,000 resistance levels. From here on, the rally will need a very good story and the Fed policy announcing the peaking of rates in the US would just be what the doctor ordered. With the Nifty and the Sensex already in uncharted territory, the major triggers now would be news flows and FPI flows. Also, the low VIX of 11. 5 will ensure that downside risks to the market are limited.

Nifty and the Sensex, being in uncharted territory, technical levels may not be too material. It has broken above multiple resistances in the last 4 weeks with a mix of fresh allocation and short covering. In addition, sector rotation has played a key role as we see the stock market outperformers changing on a weekly basis. The big story to watch out for is whether the Nifty is decisively able to break above the 20,000 mark. That will be the first big test if the markets have to go into the next orbit; and that may or may not happen in this week.