Market outlook for the week (14-Oct to 18-Oct)

14 Oct 2024 , 06:47 AM

SECTORAL STORY IN THE WEEK TO OCTOBER 11, 2024

The week to October 11, 2024 saw the Nifty and the Sensex closing marginally in the red. During the week the FPIs took out nearly $3.76 Billion from Indian equities taking the total FPI outflow to $7 Billion in just 8 trading sessions of October 2024. It was a mixed week in terms of news flows. The RBI policy did not tinker with the rates, which was disappointing. The US Fed minutes and the US inflation indicated that rate cuts may be more calibrated in the coming months. A couple of weeks after the core sector data showed contraction in August, even the IIP indicated contraction for the month. Despite the heavy FPI selling, the domestic value buying defended the market from a free fall. Here is how the 20 key sectors performed in the week to October 11, 2024.

Sectoral Index	Weekly Returns	Index (11-Oct)	Index (04-Oct)
Nifty India Defence	4.53%	6,718.34	6,426.97
Nifty Healthcare	1.97%	14,808.75	14,522.50
Nifty Automobiles	1.97%	26,436.60	25,926.30
Nifty Logistics	1.40%	25,180.53	24,833.57
Nifty Mobility	1.08%	22,323.07	22,083.55
Nifty IT	1.01%	42,335.70	41,912.50
Nifty Realty	0.85%	1,040.60	1,031.80
Nifty India Digital	0.82%	9,490.35	9,412.75
Nifty Non-Banks	0.58%	27,133.09	26,975.74
Nifty Private Banks	0.23%	25,642.60	25,583.45
Nifty MNC	0.19%	31,663.75	31,602.40
Nifty Infrastructure	0.13%	9,165.65	9,153.50
Nifty Consumer Durables	-0.37%	42,534.65	42,693.55
Nifty Banks	-0.56%	51,172.30	51,462.05
Nifty CPSE	-0.80%	7,006.35	7,063.15
Nifty Oil & Gas	-1.25%	12,306.55	12,462.50
Nifty Energy	-1.34%	41,515.80	42,080.65
Nifty PSU Banks	-1.62%	6,606.00	6,714.65
Nifty Metals	-1.78%	9,932.70	10,113.20
Nifty FMCG	-2.05%	62,080.20	63,380.05

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 11, 2024. Out of the 20 key sectors, a total of 12 sectors gave positive returns amidst the rising geopolitical risks in West Asia and the Buy China / Sell India trade. The other 8 sectors delivered negative returns for the week. The Nifty was mixed with returns of -0.20%. In terms of heavyweights, the Nifty was boosted by IT and Automobiles; while it was pressured by banking, oil & gas, and FMCG sectors.
• Let us start with the gaining sectors. After a long gap, Defence emerged as the top gainer of the week with returns of 4.53%. These positive sentiments were driven by a surge of fresh orders for Indian defence companies as well as the government decision to make a big bet on India for the manufacture of submarines. Apart from Defence; healthcare and automobiles gained 1.97% each. While auto was more of a consumer led revival amid hopes of rate cuts, the interest in healthcare was more as a defensive ploy by the investors. IT, digital and mobility were other key sectors in the high tech space, that gained from strengthening dollar.
• What about the sectors giving negative returns. There were several heavyweights in the losing list in the week. FMCG was the worst performer with -2.05% returns on serious concerns over growth and spending. Metals fell -1.78% as there was little by way of action in the Chinese stimulus story. Among other sectors; PSU banks fell -1.62% and oil & gas fell by -1.25%. While the volatility in global oil prices and the elevated geopolitical risk spooked oil; for the PSU banks, it was more a case of valuations running ahead of itself; making its valuations very vulnerable to any sell-off.
• For the week, a total of 12 out of 20 sectors gave positive returns while the remaining 8 sectors gave negative returns. The arithmetic average of returns of gainers stood at 1.23%, while the arithmetic average of the returns of the losers stood at -1.22%. That is a classic case of the market performance being almost split at the centre. Of the 12 gaining sectors; 6 sectors gained more than 1% in the week, while 6 sectors gained less than 1%. Among the 8 losing sectors; a total of 5 sectors fell more than 1% while the other 3 sectors fell less than 1% for the week.

During the week, Nifty VIX also tapered to around the 13.22X levels; which, however, still looks more like a sell-on-rises undertone for market sentiments. For the market to turn buy-on-dips, the VIX will have to dip to around the 11.0-11.5 levels.

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

For the latest week to October 11, 2024, FPIs decisively turned net sellers to the tune of $(3.76) Billion. FPIs have been net sellers in equities to the tune of $7 Billion in the first 8 trading sessions of October. Here is what defined the week ended October 11, 2024.

• Geopolitical risk was still a major issue, but took a slight backseat as both, Iran and Israel are weighing their options. It appears that Israel would not want to go into a full-fledged war without knowing who the next US president would be. That may have to wait till the presidential elections are over later this year. Having said that, West Asia remains a tinderbox for global markets and the geopolitical situation remains very uncertain.
• FPI selling was intense in the week at $3.76 Billion, with selling on all the trading days of the week. In just 8 trading sessions, the FPIs have already offloaded Indian equities to the tune of $7 Billion and are, perhaps, still not done with their selling. For now, it is still the geopolitical risk and the China valuation story that is driving the selling in the Indian equity markets. FPIs continue to view Indian valuations with scepticism.
• The RBI announced its monetary policy during the week. As expected, the repo rates were held steady at 6.5%, but the RBI did take a small step of shifting the stance of the monetary policy from “gradual withdrawal of accommodation” to a “Neutral” stance. That was more to reflect the improved liquidity conditions, and less to be viewed as a hint of any upcoming rate cuts. Interestingly, while the decision to shift the stance was unanimous, there was one dissent vote on the repo rates front, preferring a 25 bps cut.
• The Buy into China and Sell into India story appeared to continue for the week. The MSCI China valuations have been sharply lower than India, leading to this flow. In addition, the Chinese government has promised big-bang fiscal stimulus to boost growth. However, as of date, there is no announcement of any actual stimulus. If the actual stimulus does not come through in the next couple of weeks, most FPIs may do a quick rethink. That is likely to benefit the India flow story.
• During the week, the US Fed published minutes of its September FOMC meeting on October 09, 2024. What actually emanated from the minutes of the meeting was that the vote for a 50 bps rate cut was a lot tougher than we imagined. Governor Michelle Bowman may have been the sole voice of dissent, but several members had felt that 25 bps would have been enough and had even expressed their apprehensions. In the aftermath of the minutes, the CME Fedwatch toned down its trajectory meaningfully.
• Mutual funds saw net outflows in September 2024, but that was largely on account of the liquid fund and money market fund redemptions for quarterly advance tax payouts. That is a normal practice. Equity funds continued to see strong net inflows of over ₹34,000 Crore for the fifth month in a row. However, flows into hybrid funds and passive funds were muted during the month of September 2024.
• US September CPI inflation came in 10 bps lower at 2.4%. While the consumer inflation has broadly moved in tandem with PCE inflation, it is the composition of this inflation that is a lot more interesting. For instance, food inflation is up 20 bps and core inflation is also higher by 10 bps. The downward thrust to inflation has come entirely from energy deflation, contracting by -6.8% in September. However, it is not clear if this can be sustained amidst rising geopolitical uncertainty and Brent nearing $80/bbl.
• Contraction in India growth story is now real. After the core sector contracted by -1.77% for August, now even the August IIP has contracted by -0.14%. Manufacturing IIP was in the positive; but mining IIP and electricity IIP showed a sharp contraction. This could have been triggered by the slowdown in capex growth and the capex offtake this year. That remains a matter of concern for the policymakers in India.
• Global investors and even Indian investors will be closely observing the management shift at the Tata group after the demise of Ratan Tata. Already, Noel Tata of Trent, and a half-brother of Ratan Tata, has assumed charge of the Tata Trusts and will clearly play the lead role in driving the business. While Chandra remains at the helm of Tata Sons, the markets are keen to know if there will now be a change of direction and strategy.

The next big trigger for the markets will be coming from the big-ticket second quarter company results, inflation numbers and the Kharif data for the year. Needless to say, the geopolitical risk in West Asia and the Middle East continues to be elevated.

STOCK MARKET TRIGGERS FOR COMING WEEK TO OCTOBER 18, 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 18, 2024.

• For the week gone by; the Nifty 50 Index was down -0.20%, Sensex was down -0.38%, while the NSE Next-50 index rallied by +1.02%. Even as the geopolitical risk continues to be the overhang for indices, the focus of the rally has shifted to IT and automobile stocks. Among smaller stock indices; the Mid-cap 100 index gained by +1.26% while the Small Cap 100 index gained a full +1.33% for the week. Amidst macro risks, signals of alpha hunting returning to the markets is a good sign and could continue in the coming week, at least in select sectoral plays.
• This is the week of big corporate results. Among the major large cap results for Q2FY25 this week are Reliance Industries, Infosys Ltd, HDFC Bank, Kotak Bank, HCL Tech, Bajaj Auto, Axis Bank, Nestle, Wipro, Tata Consumer Products, HDFC Life etc. Among key mid-cap Q2FY25 results in the coming week will be HDFC AMC, Sterling & Wilson, Angel One, PVR Inox, JSL, Havells, Polycab, TATACHEM, TCOM, Oberoi Realty, MCX. There are also some major corporate action record dates to track this week. These include NRB Bearings, Anand Rathi Wealth, TCS (Dividends); ABANS, Pondy Oxides, HEG (Stock Split); TV18 Broadcast (Amalgamation); and a lot more.
• There are some key macro data points coming out in India in the coming week. CPI inflation and WPI inflation numbers will be announced this week. The September CPI inflation reading is expected to be sharply higher on lower base and on price spike in the food basket. Meanwhile, the merchandise trade deficit for September is likely to widen further on global trade pressures and that could have a significant impact on the full year current account deficit (CAD).
• In major global data points, the focus would be on the ECB interest rates decisions as well as the China GDP and capacity utilization data for Q3. The Q3 data from China will eventually decide the size and timing of fiscal stimulus package planned by China and will be keenly watched. In addition, there will be some interest Fed Speak candidates this week including Raphael Bostic, Waller, and Neil Kashkari. That would be interesting.
• Two key data points this week will be the crude prices and the FPI flows. For Brent Crude, the level of $80/bbl to be closely watched. Last week, Brent had stagnated, but with more geopolitical stress, oil could head up to $90/bbl. FPI action could be more crucial. Now, FPIs have already sold $7 billion in equities in first 8 trading session of October 2024; largely on the back of West Asia concerns and the emerging (Buy China / Sell India trade). Next week will decide if this trade can sustain.
• Watch out for the big action in IPO markets as the Rs27,870 crore mega IPO of Hyundai Motors opens on October 15, 2024. This is the largest IPO in history and appetite will be closely watched. Garuda Construction will list on the mainboard this week.
• Finally, the global data points. In US data points; watch for Inflation expectations, Retail Sales, IIP, API stocks, initial jobless claims, business inventories, housing starts. In ROW data, watch for IIP, Rate decision, Current Account, CPI (EU); IIP, CPI (Japan); GDP, Capacity Utilization, jobs, retails (China).

The coming week will be crucial as it will give an idea of whether the damage done by the FPI selling was temporary or is likely to leave a lasting impact.

PARTING THOUGHTS ON NIFTY AND SENSEX NEXT WEEK

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

• This week, VIX tapered to 13.22 levels. In the last few weeks, VIX has been very volatile and unpredictable; but lower levels will create a buy-on-dips market. However, sustained fall in the VIX appears to be elusive for now.
• Nifty closed the week below 25,000, which could now be the resistance. The key range will be 24,700 to 25,500 for any decisive move. For the Sensex, the key range will be 81,000 to 84,000. Any decisive move will be backed by a VIX shift too.
• The big story to watch out in the coming week will be whether alpha hunting comes back in the coming week. The mid-caps and the small caps have been subdued for a long time, and we could see action returning to these long term multi-bagger stocks.

The action shifts to the India inflation data and the trade data. But the big story would still be the geopolitical risk and the Long China – Short India trade. For this particular trade, the coming week could be critical!