Market outlook for the next week (November 13 to November 17)

13 Nov 2023 , 09:58 AM

NIFTY BOUNCE CURTAILED BY POWELL SPEECH

For the week ended November 10, 2023, the Nifty and Sensex gained 101 bps and 85 bps respectively over the previous week’s close. The current week continued the enthusiasm of the previous week post the Fed statement on November 01, 2023. In the Fed policy statement, the rates had been held at the existing level of 5.25% to 5.50%. However, the real trigger in the previous week had been the US bond yields and the US dollar index, as both of them fell sharply to more normal levels. This week, the trend continued but there was a small roadblock. The enthusiasm was curtailed in the second half of the week after the speech delivered by Jerome Powell (Fed chair) at the IMF conference. Here is why the Fed chair speech threw cold water on the market hopes.

In his speech, Jerome Powell had admitted that he was unhappy at the pace at which inflation had come down in the US. Obviously, Powell had expected that with 525 basis points of rate hikes in a span of 20 months, the inflation should have touched the 2% mark by now. However, it was not just the slow pace of falling inflation that had bothered Powell. He was also concerned that the Fed could not do enough due to rampant concerns of a recession, something that was not borne out by data. What Powell underlined at the conference was that the Fed was not done with rate hikes and there was more in store. He also underlined that Fed would not rest until inflation had decisively moved towards 2%. This actually dampened the mood of markets in the second half of the week. This also led to a rebound in the US dollar index and the US bond yields in the latter part of the week. It was these two macro variables that dampened the enthusiasm of the markets in second half.

NEWS FLOWS FROM THE PREVIOUS WEEK TO NOVEMBER 10, 2023

There were 7 major factors that influenced the Nifty movement during the week just gone by; and it was a mix of domestic and global factors.

1. The Muhurat Trading marking the ushering in of Samvat 2080 began on a positive note on Sunday night as the Nifty closed with gains of 100 points on Samvat trading day. The session was only for an hour, so the numbers may not be too suggestive. However, the PSU stocks attracted a lot of interest on Samvat trading with Coal India continuing to be the hot favourite of investors.

    

2. After the fed policy statement in the previous week, the big global news this week was the speech delivered by Jerome Powell at the IMF conference in Washington. His speech was almost in contrast to what the Fed statement had implied a week ago. Powell was almost emphatic that the Fed would continue to remain hawkish till inflation came down to the 2% mark. Also, the tone of the speech was that the Fed had been disappointed at the rate of fall in inflation and also he hinted that the Fed had not done enough to curtail inflation. Both these hints in the statement did not go down well with the markets and the impact was felt on Indian markets also in the second half of the week.

    

3. Towards the end of the week, the MOSPI announced the IIP (index of industrial production) data for September 2023. The IIP growth continued to be robust at 5.83%, although sharply lower than the 10.34% reported in August. However, this growth is still impressive once the base effect was adjusted for. The comparable IIP growth in September 2022 had bounced back to positive territory, and if that was adjusted, then the average IIP growth for FY24 looks to be on par with FY23, or even better. The real positive feature is the sustained growth in the manufacturing IIP.

    

4. FPI flows had some interesting revelations in the week. The secondary market equities saw outflows of more than Rs7,000 crore, but that was tempered by inflows of over Rs1,200 crore via IPOs. If the net FPI outflow of $697 million from equities looked a tad disappointing, the good news was the positive flows into debt. In fact, the week saw debt inflows of over Rs7,300 crore, with the result that the net inflow from FPIs (including debt) was actually positive and above Rs1,500 crore. This shift in FPI flows from equity to debt has been quite interesting. 

    

5. The other big news in the week was the sharp fall in crude oil prices as Brent Crude closed the week near to the $81/bbl mark. In the last 3 months, Brent Crude rallied from $71/bbl to $98/bbl before tapering back to $81/bbl. This is good news for Indian macros, as the Indian economy still depends on imported crude to meet 80-85% of its daily needs. To that extent, this should be positive for the Indian economy and also for the markets overall.

    

6. Let us now turn to the combination of US bond yields on the 10-year benchmark and the Dollar Index (DXY). There appears to be an underlying shift in the current week, compared to the previous week. In the previous week, the dollar index (DXY) had tapered sharply after the Fed policy statement. This week, the US bond yields and the US dollar index bounced back in the latter part of the week. The bounce was not too sharp. For instance, US bond yields closed the week almost where it was in the previous week, but the bounce from lower levels intra-week was visible. In the case of the dollar index, it spiked from 105.21 to 105.88 towards the end of the week due to the tone of the speech delivered by the Fed chair, Jerome Powell. Remember, the dollar index or DXY has crossed the 107 mark only thrice in the last 40 years, with two of the occasions in the last 2 years. Buoyant dollar index implies dollar strength and consequently it also implies rupee weakness. That was the reason that towards the end of the week, the rupee weakened to beyond the 83.30/$ mark.

    

7. With the results season almost coming to an end, it is good to look back at the key learnings for the quarter. Clearly, top line pressure was visible in most sectors, with IT and other export oriented sectors being the most prominent. The pressure came from weak global sales as well as a delayed pick-up in rural sales. For now, it is urban sales that is doing most of the hard work. But, the progress on the operating front has been a lot better as cost controls and cost optimization appears to have delivered results in the quarter. However, the net profits did see some pressure from higher interest costs and, in most cases, higher depreciation charge amidst rising capex. That is not too bad, after all.

During the week, the market trend was a reverse of the previous week. The current week started mirroring the enthusiasm of the previous week, but could not sustain after the rather hawkish undertones in Jerome Powell’s speech at the IMF conference. Nifty closed above 19,425 and the Sensex above 64,905. The big question is whether this rally can sustain once the short covering is done. That remains the million dollar question.

STOCK MARKET TRIGGERS FOR THE COMING WEEK TO NOVEMEBR 17, 2023

The next week is likely to be interesting with a number of data points like US inflation, India inflation, India trade number etc. This is apart from the global geopolitical risk, speeches by Fed officials and the vagaries of the US bond yields and the US dollar index (DXY). Here is what will impact the market direction in the coming week.

• It was a positive previous week with Nifty closing 1.01% higher, Sensex 0.84% higher, Nifty Next-50 +1.87% higher, Nifty Mid-cap index +2.89% higher and Nifty small cap index up +3.09%. While the Nifty has decisively above 19,400 levels, it is likely back to facing resistance at key resistance points like 19,600, 19,800 and 20,000. But for these levels, the Nifty has to first sustain above the 19,400 levels decisively in this week amidst a number of data  flows. That will be the challenge. 

   

• The Q2 results season is almost done and dusted with some broad hints on top line and bottom line. Here is what is left in terms of key earnings announcement in the coming week. One can watch out for quarterly results of companies like Manappuram Finance, Narayana Hrudayalaya, Aster DM Healthcare, Natco Pharma, NMDC, Trident and Wockhardt. They may not be too significant in the overall scale of things, but still hold the key to the mid-cap and small cap rally in the coming week.

   

• The week will be a busy week for the IPO market in terms of listing, if not for fresh IPOs. There are no big mainboard IPOs opening this week. But some big names like Protean eGov Technologies Ltd and ASK Automotive will list during the coming week. Tata Technologies IPO announcement is eagerly awaited and is expected this week. Needless to say, the SME IPO segment will continue to contribute the numbers, and that is where much of the IPO action has been gravitating. 

   

• The big macro data point to watch this week is the India consumer inflation for October 2023. Last month, the CPI inflation came in at 5.02%, a sharp fall from the 7.44% level seen in July 2023. As per consensus estimates, the domestic inflation is expected to taper further to around the 4.50% levels, which is just about 50 bps away from the RBI target level of 4% inflation. The focus would also be on food inflation, which was 6.56% last month and core inflation, which was at 4.5% in September 2023. WPI inflation will also be announced later this week and that will hold the key  to producer prices.

   

• In the big global announcement this week, the US Bureau of Labour Statistics (BLS) will announce the consumer inflation for the US economy for October 2023. It is expected to taper to below 3.5% in this week, but that is still pretty far from the Fed target of 2% inflation. In the coming months, the Fed may have to find a solution. It has to either accept that 2% is not practical in the near future. Or, it may have to go for more hawkish rounds of rate hikes to bring down inflation. This month consumer inflation could set the tone for the US policy decision.

   

• Finally, there will be the trade related data that will also be announced later this week wherein the imports and exports of goods and services will be closely watched. The combined deficit is the closest approximation of India’s journey towards a lower current account deficit (CAD) in FY24, something fundamental essential to protect the Indian rupee value and hope for better sovereign ratings. We have to wait and watch.

Apart from these factors, the market will be largely also influenced by the slew of speeches delivered by Fed members as well as the way the US bond yields and the US dollar index react. One important data point this week will be the oil prices as any bounce from here can be negative for Indian macros.

NIFTY AND SENSEX RANGE MAY BE STUCK IN A RANGE

For now, Nifty and Sensex look all set to trade in a narrow range this week, although the undertone is likely to be positive. For Nifty, it will be 19,300 on the downside and 19,500 on the upside. For the Sensex it will be 65,000 on the downside and 65,600 on the upside. The good news is that amidst all the market chaos, the volatility index (VIX) has remained stable in the range of 11.0 to 11.5. That indicates that the market would still be a buy on dips market, at least for now. But the narrative soon shifts from the economic front to the political front!