Market outlook for the week (07-Oct to 11-Oct)

7 Oct 2024 , 04:13 AM

SECTORAL STORY IN THE WEEK TO OCTOBER 04, 2024

The week to October 04, 2024 saw the Nifty and the Sensex closing deep in the red after 3 weeks of positive gains. During the week the FPIs took out nearly $3.2 Billion from Indian equities in the first 3 trading sessions of October. However, there were some positive data flows in the week, especially, the US unemployment number towards the end of the week. At 4.1%, the US unemployment is showing a downtrend, but more importantly, the non-farm job additions have been much higher than the median. On the Indian data flows, current account deficit (CAD) at 1.1% was wider than expected while the core sector growth dipped to -1.77% after a gap of almost 42 months. Here is how the 20 key sectors performed in the week to October 04, 2024.

Sectoral Index	Weekly Returns	Index (04-Oct)	Index (27-Sep)
Nifty Metals	0.48%	10,113.20	10,064.60
Nifty IT	-0.95%	41,912.50	42,312.60
Nifty India Digital	-1.56%	9,412.75	9,561.85
Nifty PSU Banks	-2.03%	6,714.65	6,853.75
Nifty Healthcare	-2.42%	14,522.50	14,883.30
Nifty Consumer Durables	-2.54%	42,693.55	43,806.50
Nifty CPSE	-3.11%	7,063.15	7,289.85
Nifty MNC	-3.46%	31,602.40	32,735.55
Nifty FMCG	-3.74%	63,380.05	65,845.45
Nifty India Defence	-4.31%	6,426.97	6,716.48
Nifty Non-Banks	-4.33%	26,975.74	28,195.69
Nifty Banks	-4.41%	51,462.05	53,834.30
Nifty Oil & Gas	-5.07%	12,462.50	13,128.25
Nifty Private Banks	-5.11%	25,583.45	26,960.25
Nifty Logistics	-5.11%	24,833.57	26,170.52
Nifty Mobility	-5.48%	22,083.55	23,362.99
Nifty Infrastructure	-5.53%	9,153.50	9,689.10
Nifty Energy	-5.53%	42,080.65	44,545.00
Nifty Automobiles	-6.10%	25,926.30	27,610.75
Nifty Realty	-7.69%	1,031.80	1,117.80

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 October 04, 2024. Out of the 20 key sectors, only 1 sector (Metals) could give positive returns amidst the rising geopolitical risks in West Asia. All the other 10 sectors gave negative returns, with some of the sectors like autos and realty seeing deep cuts. There were really no major gainers, except metals which gained marginally on the back of the China stimulus story. Otherwise, it was an absolute sea of red across the markets and that is not surprising in a week when even the Nifty and the Sensex fell -4.5%.
• Let us start with the sold gaining sector, Metals. The sector was the top performer in the previous week giving +7.02% returns. The healthy returns on the metals stocks was on the back of the aggressive China stimulus, which is likely to boost Chinese demand for most metals globally. Apart from metals which gained +0.48% this week, IT sector was relatively stable, losing less than 1%. That was largely due to two reasons. Firstly, the jobs data now almost rules out a hard landing for the US economy and secondly, the flight to safety is likely to benefit the US dollar. That was already evident in the strength in the dollar index this week, a move that benefits the IT industry.
• What about the sectors giving negative returns. It was a story of macro risks, so the markets did not really discriminate. However, the oil driven sectors like oil & gas, autos and industrials were the worst hit. Then the rate sensitives like realty, autos and private banks took deep cuts. You can just figure out from the fact that in the week, 8 out of the 20 sectors fell more than 5%, showing the extent of sell-off that was evident during the week. It was clearly, a case of global macros and even risk dominating markets.
• With 19 out of 20 sectors giving negative returns in the week, the arithmetic average of returns of gainers hardly mattered. The average losses of eth 19 losing sectors in the week stood at -4.13%, which broadly corresponds with the sharp fall in the Nifty and the Sensex. Out of the 19 losing sectors in the week; a total of 8 sectors fell more than 5%, 11 sectors fell more than 4%, and 14 sectors fell more than 3% in the week.

During the week, Nifty VIX also spiked to around the 14.8X levels; which looks more like a sell-on-rises undertone for market sentiments.

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

For the latest week to October 04, 2024, FPIs decisively turned net sellers to the tune of $(3.12) Billion, despite the Monday buying. FPIs may be still net buyers over a longer time frame, but the sentiments were surely dented badly in the week.

• It was a story of geopolitics all across as Israel and Iran came to the brink of war. Iran has already fired missiles into Israel and it remains to be seen how Israel retaliates. However, in the last few weeks, the focus of Israel has been more on neutralizing the key leaders of Hamas and the Hezbollah, rather than trying to wage an all-out war with Iran. That would only detract them from their core focus of neutralizing these groups, but that is going to be a long haul, which means this war will, most likely, go on.
• Now comes the real risk from the worsening geopolitics in the region. There are concerns that Israel could target the oil installations of the National Iranian Oil Company (NIOC) to cripple its economy. Then there is the possibility that as a retaliatory measure, Iran may try to blockade the Straits of Hormuz, which is the gateway to Asia. It is also possible that Houthis in Yemen could intensify its attacks on cargo ships in the route from the Red Sea to the Suez Canal. Overall, the week was about multiple risks to the Indian markets.
• FPI flows were sharply negative in the week with FPIs selling $(3.2) Billion in just the first 3 days of October. FPIs were net buyers on September 30, 2024; but the intensity of selling in the first 3 days of October was so strong that the week ended with FPI selling of $(3.12) Billion. This comes on the back of FPIs infusing $6.88 Billion in the month of September. There is also the argument that many FPIs are reallocating out of India and in favour of China, especially considering the heavy stimulus that China is planning to revive the economy. This could be the pressure point for the Indian markets.
• It was a week of key data flows from the US. The much-awaited US unemployment data came in much better than expected at 4.1% for September 2024. The rate of unemployment in the US has now fallen from 4.3% in July to 4.1% in September. Could it be a signal that the hard landing may not be a real concern at this point of time? It may be early days, but it surely gives Fed the confidence to proceed with its plan to cut another 50 bps by end of 2024 and an additional 100 bps by the end of 2025. What is also of note here is that, the non-farm payroll additions more than doubled in September over August and it is sharply higher than the historical median.
• There were some concerns over data flows in the previous with focus on India data. The first disconcerting data was on core sector growth, which contracted by -1.77%. This is first core sector contraction in 42 months. Actually, most of the previous contractions in core sector happened during the pandemic. If you exclude the pandemic period, this is the first contraction in core sector data since April 2015. One question that arises is whether this is due to the government going slow on capex growth, after it was allowed to taper from 30% to 11% in this budget. Clearly, that appears to be the case and the government may have to look at some remedial measures for now.
• On the subject of data pressure points, the India current account deficit for the first quarter of FY25 came in at $9.7 Billion or 1.1% of GDP. This is wider than the 1% CAD reported in Q1FY24, and also sharply wider than the current account of surplus of 0.5% of GDP in Q4FY24. The worry is that the full year CAD for FY25 could get closer to 2% and that was also one of the factors weakening the rupee to beyond the ₹84/$ mark in the week. In the last few months, the trend has been that merchandise trade deficit has consistently widened and the services surplus has struggled to keep pace. Even as the news on the CAD front was disappointing, the update on the fiscal deficit front was quite encouraging. In the first 5 months of FY24, the fiscal deficit is just 27% of the full year fiscal deficit target of ₹16.13 Trillion. To an extent, this is due to the hefty RBI dividend payout of ₹2.11 Trillion, which has already been accounted for in May 2024. However, that still opens up the possibility that the full year fiscal deficit may stay well below the 4.9% of GDP mark.
• With geopolitical risks all around, it was the rupee that cracked sharply in the week closing beyond the psychological level of ₹84/$. It may be recollected that in the last few weeks, the RBI has been selling dollars at around ₹84/$ to defend the rupee value. However, this week the rupee was hit by a combination of factors. Firstly, the worsening geopolitical situation in the Middle East and West Asia took its toll on the rupee. Also, the price of Brent Crude spiked from $71/bbl to $78/bbl during the week. In addition, geopolitical risks forced safe haven buying in dollar assets, which hardened the dollar index and weakened the rupee. Rupee is the variable to be watched.

The next big trigger for the markets will be coming from the second quarter company results and inflation numbers, apart from the Kharif output data for the year. But, the big challenge for markets in the short to medium term will be how it deals with geopolitical risk.

STOCK MARKET TRIGGERS FOR COMING WEEK TO OCTOBER 11, 2024

Here are some of the key stock markets triggers that can influence the direction of the stock markets in the coming week to October 11, 2024.

• It was a week of carnage on Dalal Streel. The Nifty was down -4.45%, Sensex sharply down -4.54%, and the NSE Next-50 down -4.10% among generic indices. It was largely about the rising geopolitical risk, which looks set to continue. The Nifty mid cap index fell by -3.16% and small cap index -2.51%. Selective alpha buying could return to markets in the coming week.
• The big event this week will be the RBI Monetary Policy to be announced by the Monetary Policy Committee (MPC) on October 09, 2024, at the end of its three-day meet. With a new look MPC with half the members changed, and rising geopolitical risks threatening inflation risks, it looks like status quo on rates could be the best the MPC can do, this time around.
• Result season kicks off this week. Key large cap results include TCS, Avenue Supermarts, IREDA and Tata Elxsi. Key mid-cap results this week include Anand Rathi Wealth, Reliance Industrial Infrastructure Ltd, Transformers & Rectifiers, and Hathaway GPT. The focus would be on the impact of crude prices and interest costs on the quarterly numbers in the second quarter of FY25.
• In terms of market sentiments, it is undoubtedly the Middle East and West Asia crisis that will be the key driver. With Iran and Israel inching closer to war, there are worries about the bombing of NIOC oil facilities and of Iran blocking the Straits of Hormuz. Not surprisingly, the price of Brent Crude spiked in the week from $71/bbl to $78/bbl, with a lot more risks yet to be priced in. Oil traders are betting on crude crossing above $80/bbl in the coming week, but OPEC may increase supplies and soak up the demand. Of course, the big million dollar question is if RBI will intervene in at ₹84/$ this week.
• In big global news flows, the minutes of the Federal Open Markets Committee (FOMC) meeting held on September 18, 2024; will be published on October 09, 2024. Markets will look to the FOMC minutes for clear signals on the future rates trajectory, especially amidst macro risks and rising geopolitical and inflation concerns. In addition, the US Bureau of Labour Statistics (BLS) will also announce the US CPI inflation on October 10, 2024. The expectation is that the US consumer inflation could taper further by 20 bps to 2.3%, but oil price risks are rising and the Fed also would be cautious of the fact.
• With just one IPO of Garuda Construction in the coming week, FPI flows do not have any IPOs to fall back upon. Hence equity flows from FPIs are likely to be under pressure, especially after the $3.12 Billion sell-off during the current week.
• Finally, key data points from the US include Balance of trade, FOMC minutes, CPI Inflation, EIA crude inventories, initial jobless claims, MBA Mortgages, Purchasing power index (PPI) etc. In terms of the rest of the world, major cues are Retail Sales (EU); Household spending, Current account, Machine tool orders (Japan); and Forex Reserves as well as vehicle sales (China).

The coming week will be crucial as it will give an idea of whether the damage done by the West Asian geopolitical crisis was just temporary or is likely to leave deeper fissures.

PARTING THOUGHTS ON NIFTY AND SENSEX NEXT WEEK

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

• Last week, VIX spiked to 14.9 levels. In the last few weeks, VIX has been very volatile and unpredictable; but lower levels will create a buy-on-dips market. However, any fall in the VIX appears to be elusive for now, amidst the rising geopolitical tensions.
• Nifty closed the week at 25,014 falling -4.5% in the week and closing near the lowest point of the week. For now, the 24,000 to 24,500 levels appears to be the only credible support of 25,000 is broken. However, a bounce this week cannot be ruled out in Nifty.
• Sensex lost nearly 4,000 points in the week and has fallen close to 4,500 points from the peak. With Sensex closing the week at 81,688, the range of 80,000 to 81,000 is likely to be the last major support, before testing the 78,000 range. Upsides could be tough.

The action now shifts to RBI monetary policy announcement next week and the FOMC minutes. But it will be the geopolitical risk and the Iran – Israel stand-off that will grab centre stage for global markets.