Market outlook for the week (24-Jun to 28-Jun)

24 Jun 2024 , 09:05 AM

STORY OF SECTORAL INDICES IN THE WEEK TO 21-JUN

The week to June 21, 2024 can be described as a week of contrasting fortunes for specific sectors. While private banks, and to a lesser extent, IT and Metals put up a good show in the week, all the other sectors were either flat or in the red. Incidentally, this was the second week in a row were FPIs were heavily on the buy side. In the 2 weeks since the new government has taken oath, the FPIs have infused $3.24 Billion into India, clearly showing their faith in the India story. It is not yet a deluge; but the flows are surely coming back. Here is a quick look at how key sectors performed in the week; and we look at 20 sectors in all. These are indexed descending on weekly returns.

Sectoral Index	Weekly Returns	Index (21-Jun)	Index (14-Jun)
Nifty Private Banks	4.17%	25,811.35	24,777.05
Nifty Banks	3.32%	51,661.45	50,002.00
Nifty Financial Services	2.59%	22,991.55	22,411.95
Nifty IT	1.74%	35,200.30	34,598.55
Nifty India Digital	1.15%	8,143.15	8,050.30
Nifty Metals	0.79%	9,990.90	9,912.10
Nifty Consumer Durables	0.48%	38,161.90	37,978.95
Nifty Realty	0.25%	1,131.90	1,129.10
Nifty India Defence	-0.14%	7,089.68	7,099.41
Nifty CPSE	-0.98%	6,708.40	6,774.85
Nifty PSU Banks	-1.07%	7,384.25	7,464.15
Nifty Energy	-1.42%	40,457.55	41,040.00
Nifty Logistics	-1.44%	23,852.11	24,200.31
Nifty Mobility	-1.46%	21,005.19	21,316.08
Nifty Healthcare	-1.49%	12,424.50	12,613.00
Nifty Infrastructure	-1.58%	8,885.70	9,028.70
Nifty MNC	-1.81%	30,114.70	30,670.65
Nifty Oil & Gas	-1.94%	11,860.45	12,095.25
Nifty FMCG	-2.16%	55,990.10	57,225.85
Nifty Automobiles	-2.45%	25,092.30	25,722.10

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 June 14, 2024. Out of the 20 key sectors, only 8 sectoral indices gave positive returns. The remaining 18 indices gave negative returns for the week to June 21, 2024. While markets celebrated the return of stability in political equations, it was also a week that saw rationalization of the rally, especially in sectors like automobiles, FMCG and the much-talked defence stocks.
• Let us start with the top gainers for the week. Private banks were the top gainer in the week with 4.17% returns. The positive outlook for private banks came after a CLSA report opined that private banks could see a rebound in FY25. That was the story of the week as private banks took the entire banking index into the positive; although the PSU banks were in the red, on a standalone basis. IT was the other sector that delivered positive returns, largely on the back of dollar strength in the week.
• The worst hit were the sectors like automobiles, FMCG and oil & gas. The last two indices seen a frenetic run in the last few days and hence some correction was on the cards. However, oil & gas, autos and FMCG also bore the brunt of higher crude oil prices, which surged above $85/bbl in the Brent market. In addition, the delayed monsoon also had its impact on the sentiments surrounding the auto and FMCG index.
• With 12 out of 20 sectors giving negative returns in the week, the arithmetic average of returns of these 20 sectors stood at -0.17%. However, thanks to the predominant weightage of private banks in the Nifty index, it still managed to close the week with gains.

The big story in the week was the return of the private banks to the centre of the Nifty rally, something that had been missing for the last few months.

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

For the week to June 21, 2024, FPIs were again net buyers to the tune of $1,825 Million. That makes it FPI infusion of $3.24 Billion in the last 2 weeks; showing some promise. Here is what drove FPI sentiments this week.

• The MPC minutes published by the RBI on Friday remained sceptical about rate cuts at this juncture due to sticky food inflation and uncertain monsoons. What impressed the markets was that two out of the six members of the MPC put up ta dissent note; calling for cutting rates by 25 bps and also shifting the monetary stance of the policy. That has now given hope that the RBI may seriously consider pre-emptive rate cuts after the full budget is presented in July. So, the hope is that the first rate cut in India could be as early as in the August 2024 policy statement; but we have to wait and watch.
• The USDINR came under pressure due to a spike in oil prices, but more important, due to the strength in the dollar index. Dollar has been on a rally since the French crisis pulled the Euro down. During the week, the USDINR touched a lifetime low of 83.684/$ before seeing some RBI intervention in the latter half of the week. However, the rupee is likely to remain under pressure in the coming week also amidst dollar strength.
• It sounds surprising, but the price of crude oil spiked in the week despite the US oil inventories showing a surge. For the week, the price of Brent Crude closed above $85/bbl. The spike was on the back of expectations that global oil demand will continue to remain robust as growth returns to most economies. In fact, markets are now betting that even if OPEC gets back to normal supplies later this year, the oil market will continue to remain undersupplied. That means price of crude will remain steadily on the higher side through the year.
• In what could have a reaction from the markets; SEBI is planning two major changes to its regulatory tone. In the first piece of change, SEBI plans to classify income from futures and options as speculative income. Of course, this will be done in conjunction with the CBDT and will require a large buy-in. However, the gist of the story is that by shifting F&O from business income to speculative income, they want to discourage retail investors from getting into speculative F&O transactions. Of course, back-to-back hedge transactions are likely to kept out of the ambit, but retail typically speculates on F&O; and that is likely to be impacted. So, expect some impact on volumes.
• The other big shift planned by SEBI is on pre-market price discovery in the case of newly listed IPOs on listing day. SEBI plans to regulate the pre-market price discovery of IPOs that happens on listing day; to avoid the risk of the predominance of large orders. SEBI believes that in the current scenarios, price setting is being influenced by a few large orders that distort price discovery. Worse still; these orders get cancelled subsequently. To address this issue, SEBI wants to make timing of the pre-market closure for IPOs uncertain in a band of 15 minutes. That will surely reduce the speculative element.
• The surge in advance tax collections for the first quarter up to June 15, 2024, has given the government the confidence to raise the MSP for Kharif ahead of the cropping season this year. The minimum support price (MSP) for a range of Kharif crops was hiked between 5% and 12.5%. But, the real story was on the advance taxes front. Till June 15, 2024 (the first advance tax payment date for FY25), advance tax receipts were up 27% yoy, compared to the corresponding period last fiscal year. That is good news as it means that India could better the revenue target on taxes in this year.

With most of the data flows done and dusted, the action shifts to the last week; when big data points are slated to be announced by India and the US. Some of the key data points in the coming include India fiscal deficit, India CAD, core sector growth, US GDP, US PCE inflation etc. Let us now turn to the triggers for the next week.

STOCK MARKET TRIGGERS FOR COMING WEEK TO JUNE 28, 2024

Here are some of the key stock markets triggers that can influence the direction of the stock markets in the coming week to June 28, 2024.

• Among generic indices, Nifty closed +0.15% up, Sensex +0.28% higher, and the Nifty Next-50 closes -1.09% lower. Private banks led the gains in the week, despite limited support from other sectors. In addition, the Mid-cap index was up +0.37% and the small cap index closed +1.06% higher. The big small stock action is yet to begin.
• The coming week will see key dividend record dates (RD) of Tata Elxsi, Voltas, Titan, Bajaj Holdings, BOB, GIC Housing, IndusInd Bank, REC, Syngene, and Nippon India AMC. Also, after $3.24 Billion inflows from FPIs in 2 weeks, FPI flows will be crucial next week. Other key data points will be Brent Crude, which is already above $85/bbl and USDINR, which is hovering around 83.55/$.
• It is a week of key macro data coming from India. The core sector data for May will be announced on the last day of the week and the trend is expected to be up. Specifically, the core sector assumes significance as a barometer of the result of the government capex spending. In addition, the fiscal deficit update will also be put out for May 2024, which assumes significance after the spike in April.
• The big data point to watch will be the full year current account deficit (CAD) for FY24. Early data suggests that it could be at 1% of GDP or lower, which is a comfortable situation to be in. Anything lower than that could be a major positive for the sentiments in the markets and could also provide a boost to the way the rating agencies look at the sovereign ratings.
• The week will also see key data points from the US. The US Q1 GDP final estimate and PCE inflation to be out during this week. While PCE inflation could be slightly lower, the focus will be on whether the Q1GDP betters 1.3% growth rate. GDP is a two way story. Low GDP reinforces the need for rate cuts, while robust GDP is good for markets. The PCE inflation will also hold the key to the future trajectory of rates and whether rate cuts in September 2024 are actually likely to happen. Markets would be ok as long as there is no spike in the PCE inflation for May 2024.
• The coming week will be an interesting week for the IPO markets. There is the ₹1,500 Crore IPO of Allied Blenders and Distillers that opens this week as does the IPO of Vraj Iron and Steel. In addition, the IPOs of Stanley Lifestyles will close this week while the IPO of Dee Developers and Akme Fintech will list during the current week.
• This will be the first F&O expiry after the new government has taken office, so there would be some heavy adjustments to the F&O positions in this week. Hence, the week could be marked by a lot of volatility due to the churn in positions. Most traders are likely to take a final call on rollovers in this week.
• Finally, a quick look at global market triggers. Key US triggers include Q1GDP, PCE inflation, HPI, API crude stocks, new home sales, building permits, Bank stress tests, jobless claims. Key triggers for rest of the world (ROW) include consumer confidence (EU); BOJ summary, retail sales, unemployment (Japan); current account surplus (China) and GDP (UK).

The coming week will be critical for the markets from a data flow perspective. Here is how the Nifty and Sensex could pan out.

PARTING THOUGHTS ON NIFTY AND SENSEX NEXT WEEK

For the coming week, there are 3 things to watch out for, and which would determine the context for the future direction of the market.

• The big story will be the VIX. It has sobered from 27.3 to 12.8 but bounced back to 13.4 in the week. VIX could spike in this week due to F&O expiry related volatility, as major churn in expiry stocks is expected.
• For the Nifty, 24,000 now becomes next the decisive level and interim levels are, at best, roadblocks. If Nifty breaks above 24,000 with volumes, then it gets into uncharted territory. Shorts are not fully covered, so this expiry could be crucial.
• For the Sensex, the level of 79,000 is the next hurdle; breaching which it should then target levels of 81,000 on the upside. It remains to be seen if it happens before the Union Budget or waits for the fine print.

Political uncertainty and VIX volatility are now history. The focus now shifts to hard data and how the Modi 3.0 government finds a common reforms factor amidst coalition politics.