Market outlook for the week (21-Oct to 25-Oct)

21 Oct 2024 , 09:35 AM

SECTORAL STORY IN THE WEEK TO OCTOBER 18, 2024

The week to October 18, 2024 saw the Nifty and Sensex closing marginally in the red. But, that was more because the heavy selling in oil, metals, FMCG and autos was compensated by buying in banks and IT. The net impact may have been neutral, but the dichotomies in performance were fairly large. During the week the FPIs withdrew $2.26 Billion from Indian equities taking the total FPI outflow to $9.25 Billion in 13 trading sessions of October 2024.

This week, the concerns were less on the global geopolitics front and more on market internals like rising inflation, food prices and weak Q2FY25 numbers. Despite the heavy FPI selling, the domestic value buying defended the market from a free fall. However, the worry is that domestic institutional may run out of liquidity in the next one month. Here is how the 20 key sectors performed in the week to October 18, 2024.

Sectoral Index	Weekly Returns	Index (18-Oct)	Index (11-Oct)
Nifty Banks	1.80%	52,094.20	51,172.30
Nifty Private Banks	1.33%	25,984.10	25,642.60
Nifty PSU Banks	0.99%	6,671.25	6,606.00
Nifty Realty	0.64%	1,047.30	1,040.60
Nifty Infrastructure	0.18%	9,182.00	9,165.65
Nifty IT	-0.54%	42,106.50	42,335.70
Nifty India Defence	-0.59%	6,679.02	6,718.34
Nifty Healthcare	-0.73%	14,699.95	14,808.75
Nifty Energy	-0.75%	41,205.55	41,515.80
Nifty Consumer Durables	-0.97%	42,121.90	42,534.65
Nifty India Digital	-1.06%	9,390.05	9,490.35
Nifty CPSE	-1.11%	6,928.30	7,006.35
Nifty Non-Banks	-1.51%	26,724.00	27,133.09
Nifty Oil & Gas	-1.64%	12,104.25	12,306.55
Nifty FMCG	-1.67%	61,042.10	62,080.20
Nifty Metals	-1.80%	9,753.90	9,932.70
Nifty MNC	-2.08%	31,006.00	31,663.75
Nifty Mobility	-3.58%	21,524.03	22,323.07
Nifty Logistics	-4.00%	24,172.64	25,180.53
Nifty Automobiles	-4.88%	25,146.90	26,436.60

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 18, 2024. Out of the 20 key sectors, only 5 sectors gave positive returns amidst valuation concerns and pressure on Q2 results. The other 15 sectors delivered negative returns for the week. The Nifty was under pressure with returns of -0.45%. In terms of heavyweights, the Nifty was boosted by banking stocks; while it was pressured by auto, FMCG, and oil & gas stocks. Essentially, the consumer plays came under pressure after the weak festival outlook.
• Let us start with the gaining sectors. After a long gap, the banks were back to being the leaders and principally the support came from private banks and PSU banks. Banking index gained 1.90% during the week, with the private bank index gaining 1.33%. After the RBI shifted its stance to neutral in the monetary policy, there are soaring hopes that the RBI rate cut may come in as early as December 2024. The other major sector to gain during the week was the realty sector, being a rate sensitive story. However, banking results were not too great, with HDFC Bank reporting pressure on its lending book. One factor that helped financials was the much anticipated HDB Financial mega IPO.
• What about the sectors giving negative returns. There were several heavyweights in the losing list in the week. Auto stocks were the worst performer with -4.88% returns after Bajaj Auto saw net profits falling 31.2% in Q2FY25 and the Bajaj Auto management guided tepid for festival sales of growth of just 3-5%, compared to 8% last year. Among other key sectors that fell during the week were Transport & Logistics -4.00%, Nifty Mobility -3.58%, Nifty MNC -2.08%, Nifty Metals -1.80%, Nifty FMCG -1.67%, and Nifty Oil & Gas -1.64%. The fall in Nifty Mobility was largely a fall in the auto index while Nifty Metals fell sharply due to delay in China implementing its stimulus. MNC and FMCG indices represented concerns over weak consumption, while the oil & gas index reflected concerns over the sharp fall in Brent Crude prices globally. Oil also took a hit after the Reliance Q2 results showed stress in the O2C business.
• For the week, 5 out of 20 sectors gave positive returns while the remaining 15 sectors gave negative returns. The arithmetic average of returns of gainers stood at 0.99%, while the arithmetic average of returns of losers stood at -1.79%. That is a classic case of the market performance gravitating towards losers in the index. Of the 5 gaining sectors; only 2 sectors gained more than 1% in the week. Among the 15 losing sectors; 3 sectors fell more than 3% while a total of 10 sectors fell more than 1% for the week.

During the week, Nifty VIX remained subdued around the 13.02X levels; which still looks 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 18, 2024, the Nifty and Sensex were subdued with a marginally downward bias. The sectoral dichotomy was interesting; with banks and IT supporting markets, but consumer stocks under pressure. Here is the week that was.

• It was a week of inflation announcements in India. Both inflation readings were sharply higher. The consumer inflation for September 2024 spiked to 5.49%; tad disconcerting after 2 consecutive months of sub-4% inflation. At the same time, the WPI inflation also spiked from 1.31% to 1.84%, indicating that price pressures (specifically food price pressures), were rampant in retail and wholesale inflation. The consumer food inflation spiked from 5.66% to 9.24% in September; on the back of a sharp spike in prices of vegetables due to delayed withdrawal of monsoons. The only saving grace for consumer inflation was the sharp fall in energy inflation, which made things look tolerable.
• It was a week in which the oil prices in the Brent Crude market fell sharply from $79/bbl to $73/bbl after OPEC lowered its outlook for China demand. China has been cutting oil imports as it is relying more on domestic output. However, despite the sharp fall in the crude prices, the Indian rupee remained under pressure, due to strong dollar index. Dollar has emerged as safe haven asset class amid the global tumult.
• Will RBI cut rates in December 2024 in the light of a spike in retail and WPI inflation? Currently, the verdict is split. The RBI governor, in a recent interview, underlined that cutting rates in the midst of elevated inflation may be too risky. That is like pushing off rate hikes to February 2025, or beyond. On the other side, the banking stocks rallied in the week, on hopes that the RBI may go for rate cuts in December 2024. The argument is that with contraction in IIP and core sector growth; weak capex and a likely fall in consumption, the only answer may be to cut rates. The jury is still out on this.
• FPIs turned heavy sellers in the week to October 18, 2024. The net FPI selling in equities in the latest week was to the tune of $2.26 Billion. In October, the FPIs have been sellers in all 13 trading sessions and have sold $9.25 Billion of equities. This is the highest ever FPI selling in a month; and remember there is still 9 more trading days in the month.
• Merchandise trade deficit for September 2024 sobered to $20.8 Billion after getting perilously close to $30 billion in the previous month. Exports struggled due to weak global demand while imports have been hit by higher freight costs and higher insurance costs. For H1FY25, merchandise trade deficit stood at $137.44 Billion while combined trade deficit (including services trade surplus) was 24% higher yoy at $54.83 Billion. That signals that full year current account deficit (CAD) for FY25 at 1.8% to 2.0% of GDP.
• Reliance Industries disappointed the street in its core oil to chemicals (O2C) business, which led to a small contraction in profits in Q2FY25. The O2C business came under pressure due to weak gross refining margins (GRMs), which has also been the trend in the benchmark Singapore GRM. However, the Reliance Industries performance had another narrative. While the top line in the quarter was driven by retail, the profit growth was sustained by the telecom and digital business. However, the GRM compression led to a sharp fall in the oil & gas index in the week.
• The biggest IPO in Indian primary markets history had a tepid response on the last day of its IPO. The retail and the HNI / NII portion were undersubscribed. The ₹27,800 Crore IPO of Hyundai Motor India closed with total subscription of around 2.6 times. However, that was almost an institutional bailout with the QIB portion getting oversubscribed 6.97 times. The retail portion of the IPO was subscribed just about 50% while the HNI / NII portion was subscribed just 60%. This raises concerns over upcoming big-ticket IPOs like HDB Financial and Swiggy, where retail response will hold the key.
• There were two other heavyweight results that disappointed the street. HDFC Bank may have beaten profit estimates but it disappointed with just 3.46% NIMs and guided for tepid credit growth in FY25. Banks rallied on rate cut hopes, but HDFC Bank could hold back the banking rally. In another instance, Bajaj Auto announced a 31% fall in net profits in Q2FY25. But the real shocker was its lowered guidance of festival season sales growth at 3-5%. This is sharply lower than last year’s 8% growth. That led to a virtual sell-off in auto stocks and most of the other consumption stories in India.

The next big trigger for the markets will be coming from the remaining Q2 results and the minutes of the RBI MPC, which are expected in the coming week.

STOCK MARKET TRIGGERS FOR COMING WEEK TO OCTOBER 25, 2024

The coming week to October 25, 2024 will be critical as the FPIs will once again test the market internals; especially in the light of the second quarter financial results.

• For the previous week; the Nifty was down -0.44%, Sensex down -0.19%, while the NSE Next-50 fell sharply by -1.45%. In the large cap space; banks and IT stocks held up, but consumption stocks took it on the chin. That trend is likely to continue. Among other indices; the mid-cap index fell -0.95% while the small cap index bounced +0.36% for the week. Amidst macro risks, alpha hunting is visible, which was also visible in the mutual funds aggressively buying small and mid-caps in September 2024.
• The coming week will see Q2FY25 results of large caps like ICICI Bank, HUL, ITC, ACC, Ultratech, Bajaj Finance, BPCL, Coal India, JSW Steel, SBI Life, and Varun Beverages. Key non-index results next week include Bank of Baroda, Bajaj Housing Finance, Interglobe, Paytm, Zomato, Indus Towers, Coforge, TVS Motor, Persistent, Colgate, and Godrej Consumer. In corporate actions; watch for dividend record dates next week for JNK, HCL Tech, Dalmia Bharat, LTI Mindtree, LTTS; and buyback record date for Matrimony.com.
• One of the key triggers next week will be the RBI monetary policy minutes to be announced on Wednesday. The minutes will be critical, despite the RBI having maintained status quo on rates. It will help understand the logic of the stance shift and how quickly, the RBI could be cutting repo rates.
• Two key variables next week will be FPI flows and crude oil prices. FPIs have sold $9.25 Billion in 13 trading sessions in October with no signs of relenting. However, Brent cracked during the week from $79/bbl to $73/bbl after the OPEC cut China demand outlook, hinting at a supply glut in the oil market. OPEC is likely to boost supplies.
• India manufacturing and services PMI Flash will be put out this week. The HSBC PMI for manufacturing and services showed signs of pressure last month. However, now it will be viewed in the light of the contraction of the IIP and core sector growth. Like the core sector, even the PMI is a high frequency indicator of economic growth.
• A key data point this week will be the forex reserves accretion / depletion. In the week to October 11, 2024, the forex reserves had fallen sharply by $10 Billion to a level of $690 Billion. This is specifically relevant as the RBI has been aggressively supporting the rupee at around 84/$ by selling dollars. It remains to be seen, if the RBI will sustain the rupee defence, although this week again forex reserves are slated to fall sharply.
• Big upcoming IPOs will be under the scanner after tepid response to Hyundai IPO last week. There are big ticket IPOs coming up like HDB Financial, Swiggy, and Waree Energies. Most of these IPOs will be counting heavily on retail and HNI support. The market absorption pressure would be tested by these big ticket IPOs.
• Key US data points next week include API/EIA oil stocks, Existing Home sales, jobless claims, PMI Flash, Building Permits, and Durable Goods Orders. Key ROW data points for the coming week include Consumer Confidence Flash, HCOB, PMI Flash, Inflation Expectations (EU); Jibun Bank PMI Flash (Japan).

Let us finally turn to what these triggers mean for the outlook for the Nifty and Sensex in the coming week.

PARTING THOUGHTS ON NIFTY AND SENSEX FOR NEXT WEEK

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

• This week, VIX tapered to 13.02 levels from 13.22. In the last few weeks, VIX has been gradually tapering, but it has to tip to the range of 11.0-11.5 to trigger a buy-on-dips market. However, sustained fall in the VIX appears to be elusive for now.
• Nifty closed the week around 24,850, which could now be a resistance zone up to 25,000. The key range will be 24,500 to 25,200 for any decisive Nifty move. For the Sensex, the key range will be 80,500 to 83,000. However, a key shift in the VIX levels will hold the key to any breakout outside these ranges.
• How will the coming week be for the Nifty and Sensex? It will largely depend on how the India consumption story pans out. Currently, that theme is showing short-term stress. A recovery in the markets will depend on greater optimism on the consumption story.

For now, the Nifty and Sensex will focus less on external factors like Fed action and geopolitical risk; and more on internal factors like Q2 results, consumption triggers, festival demand and RBI rate action!