Market outlook for the next week (November 20 to November 24)

20 Nov 2023 , 06:55 AM

NIFTY BOUNCES; CLOSES ABOVE THE 19,700 LEVELS

For the week ended November 17, 2023, the Nifty and Sensex gained 158 bps and 137 bps respectively over the previous week’s close. The current week continued the enthusiasm of the previous two weeks post the Fed statement on November 01, 2023. It may be recollected that the Fed policy statement had held the Fed benchmark rates at the existing level of 5.25% to 5.50%. The Fed decision to hold rates had reversed the trend of the US bond yields and the US dollar index, as both of them fell had then fallen sharply to more normal levels. However, the next week to November 10, 2023 had seen the trend go back to a rising trend as the language of the Fed chair, Jerome Powell had continued to remain very hawkish as he hinted that more rate hikes were inevitable at some point in the future.

The see-saw of sentiments continued during the third week also. The US consumer inflation, which was announced on November 14, 2023 came in 50 bps lower at 3.2% compared to 3.7% in the previous two months. This sharply lower inflation raised the hope that the Fed had its inflation story well under control. Above all, the market once again diverged from the Fed stance and as a result the US bond yields and the US dollar index fell sharply. This combined with lower inflation in India helped the Indian markets as FPI buying also returned to the Indian markets. Overall, the latest week was on of underlying bullishness in the Indian markets, supported by favourable macros and a turnaround in FPI flows.

NEWS FLOWS FROM THE PREVIOUS WEEK TO NOVEMBER 17, 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 India CPI inflation or CPI inflation came in at 4.87% for the month of October 2023. This is lower than the September 2023 reading of 5.02%, although the inflation for October was higher than the consensus estimates of 4.8%. However, what was really positive about India inflation story was the sharp fall in the core inflation, which has tapered by 60 bps from 4.80% to 4.20% in the last 2 months. That was the big positive takeaway from the inflation data for the month of October.

    

2. The other big inflation data for the week came from the US consumer inflation. US inflation came in 50 bps lower at 3.2% for the month of October. In August and September, the US inflation had stayed elevated at 3.7% levels. The sharply lower US inflation raised hopes in the US markets that the Fed would now focus on holding rates at the current level and also aggressively cutting rates in 2024. This led to a sharp re-rating of equities across the world on the positive side.

    

3. One piece of data that was slightly cautious for the Indian market was the trade data. For the month of October 2023, the merchandise trade deficit came in at $31.46 billion, the highest monthly figure on record in Indian trade history. Ironically, this sharp spike in the trade deficit was caused by a doubling of gold imports amidst the festive season. However, the implication for the market was something bigger. A key driver of current account deficit is the combined deficit; which is the merchandise trade deficit adjusted for the services trade surplus. For October, the overall combined deficit came in sharply higher at $17.5 billion which has raised the possibility that the current account deficit (CAD) for FY24 could be closer to 2.5%. That is not great news for the Indian rupee and also for India’s sovereign ratings.

    

4. FPI flows marked a sharp turnaround in the current week. After 11 weeks of net FPI outflows from equities, the latest week to November 17, 2023 saw net FPI inflows of $869 million into Indian equities. Of course, this was sharply triggered by IPO flows, but that is fine. Equity is equity nevertheless and they are still net FPI inflows. Also, the debt flows in November are nearly $2 billion, one of the best months in recent memory for debt inflows. This positive trend from FPIs has been one of the highlights of the positive sentiments for the market in the current week.

    

5. The other big news in the week was the sharp fall in crude oil prices as Brent Crude dipped to as low as $77/bbl before closing just above the $80/bbl mark. The fall in crude prices was led by a sharp spike in US inventories as well as fears of a sharp fall in Chinese oil refining throughput, which will impact the demand for crude oil in China. This is good news for Indian macros, as the Indian economy is still reliant on imported crude to meet 80-85% of its daily needs. To that extent, this should be fundamentally positive for the Indian economy and also for markets overall. That was visible in sentiments this week.

    

6. Let us turn to the all-important 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, once again, compared to the previous week. In the previous week, the dollar index (DXY) and the bond yields had shown signs of hardening. This week they were back to softer days in the aftermath of the US inflation data coming in lower at 3.2% for October 2023. With the CME Fedwatch moving in favour of more rate cuts and the end of rate hikes, the impact was visible on the US bond yields and on the US dollar index. In the case of the dollar index, it tapered in the week from 105.63 to 103.82 towards the end of the week due to the sharply lower inflation reported by the US economy. Even the US bond yields during the week softened from 4.638% to 4.439% on the back of lower inflation reading in the month of October 2023.

    

7. India’s weight in the MSCI Emerging Market index is all set to go up from 15.88% to 16.30%. The MSCI EM index is the benchmark for global investors (especially the passive investors) to be allocating funds to India. That promises a substantial amount of passive flows into India in November as the changes are effective the end of this month. Above all, India already has 131 stocks represented in the index, the highest representation in the EM index for any country int terms of number of stocks. This is likely to be a positive for the Indian markets. 

    

8. Toward the end of the week, the RBI has left the banks with some room for concern as it has asked the banks and NBFCs to raise their capital risk weights for consumer loans from 100% to 125%. The ballpark estimate is that this could increase the cost of such consumer loans by 75 bps to 100 bps and could dampen loan demand in the future, but we have to wait and see. This could have ramifications for the financial sector, which has a weight of over 36% in the Nifty basket overall.

During the week, the market trend continued to be positive, even as the Nifty and Sensex closed with gains for the third week in a row. Nifty closed above 19,700 and the Sensex above 65,700. The big question is whether this rally can sustain once the short covering is done. The good news is that sentiments are changing for the better!

STOCK MARKET TRIGGERS FOR THE COMING WEEK TO NOVEMEBR 24, 2023

The next week is likely to be interesting. While the data points may be limited, the focus would be global. However, the most interesting story for next week will be how the IPO markets handle the deluge of big ticket IPOs that open this week. Here is what will impact the market colour and direction in the coming week (20-Nov to 24-Nov).

• It was the third positive week for most of the frontline indices in the week to November 17, 2023. Nifty closed the week +1.58% higher while the Sensex also gained 1.37% and the Nifty Next-50 closed +2.44% higher. That leaves the Nifty with just one key resistance of 19,800 in the coming week, before it makes a dash for the 20,000 mark. The real action, however, would be on the small companies space. For instance, the rally in mid-cap index continued this week at +2.65% and small cap index gained +3.87% in the week. This is in tune with the sentiments in the previous week as sentiments favoured alpha hunting at fairly elevated levels of the benchmark indices. 

   

• The coming week will also mark some key record dates for corporate actions. Key dividend record dates coming up this week for companies include Aurobindo Pharma, Mazagon Docks, Coal India, Gillette India, Sun TV Networks, P&G, Uniparts, Natco and Power Finance Corporation. In addition, the coming week will also see buyback record dates for Atul Ltd, Gujarat Narmada Valley Fertilizers Ltd, and TCS. In addition; Olatech, Shaily Engineering, Avantel, and Ravalgaon Sugars will see record dates for bonus and stock splits in the coming week.

   

• The coming week will be a busy week for the IPO market. A total of five mainboard IPOs with hit the market this week to raise Rs7,400 crore between them. These big ticket IPOs include some of the much awaited names like IREDA, Flair Writing Products, Fedbank Financial, Tata Technologies and Gandhar Oil. What would enthuse demand for these IPOs will be the performance of IPOs listed in the previous week. This includes returns of Protean eGov Technologies gaining 43% post listing; ESAF SFB gaining 14.8% after listing and Ask Automotive gaining close to 10% over the listing price.

   

• Big global data point this week will be the Fed minutes on 22nd November. It may be recollected that the Fed had held status quo on rates at the range of 5.25% to 5.50%. However, markets would be more interest in the gist of the discussions of the FOMC members and how the dot plot of rate expectations looks like. However, the week also saw the US inflation fall to 3.2%, resulting in the bond yields tapering to 4.43% levels while the dollar index fell to 103.82. That trend is likely to sustain in the coming week.

   

• Crude oil bounced to $80/bbl after dipping to $77/bbl during the week. Oil came under pressure in the week due to concerns over rising US inventories and weak Chinese demand for oil, amidst low refinery throughput. That is likely to be positive for Indian markets considering its global crude dependency. Not surprisingly, FPIs had turned net buyers of $869 million last week in equities and that looks set to continue this week. Rupee will be in focus this week amidst a sharp spike in trade deficit in October 2023.

   

• Finally, we turn to the key global data points to watch this week. In terms of US data points, the focus will be on FOMC minutes, API stocks, existing home sales, durable goods, initial jobless claims, and composite PMI flash. For ROW cues, the data focus will be on Construction, consumer confidence, HCOB, and PMI in EU; while data points in Japan will include inflation reading, Jibun Manufacturing, and PMI flash.

NIFTY COULD MAKE A DASH FOR 20,000 THIS WEEK

In the coming week, the Nifty is expected to make a dash for 20,000 and the Sensex for 67,000 levels. The undertone is likely to be positive for equity markets this week. Supports would be around 19,500 on Nifty and 65,000 for Sensex. Despite all the market chaos, the volatility index (VIX) has remained stable in the range of 11.50 to 11.80. That indicates that the market would still be a buy on dips market, for the time being. Don’t forget, the first election cues will also start coming this week for state assembly elections.