Market outlook for the week (28-Oct to 01-Nov)

28 Oct 2024 , 10:09 AM

SECTORAL STORY IN THE WEEK TO OCTOBER 25, 2024

The week to October 25, 2024 saw the Nifty and Sensex sharply lower by 2.71% and 2.24% respectively. Barring IT, all the other frontline sectors saw heavy selling; with themes like PSU stocks, consumption, and metals the worst hit. The net impact was a sharp crack in the markets. During the week the FPIs withdrew $962 Million from Indian equities taking the total FPI outflow to $10.22 Billion in 18 trading sessions of October 2024.

This week, the concerns were on global geopolitics and more on market internals like rising inflation, food prices and weak Q2FY25 numbers. Despite the heavy FPI selling, the domestic institutional buying by LIC and domestic funds 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 25, 2024.

Sectoral Index	Weekly Returns	Index (25-Oct)	Index (18-Oct)
Nifty IT	-0.16%	42,038.85	42,106.50
Nifty Banks	-2.51%	50,787.45	52,094.20
Nifty Healthcare	-2.70%	14,302.35	14,699.95
Nifty India Digital	-2.87%	9,120.60	9,390.05
Nifty Private Banks	-3.15%	25,166.80	25,984.10
Nifty FMCG	-3.50%	58,908.50	61,042.10
Nifty Non-Banks	-4.39%	25,552.10	26,724.00
Nifty Mobility	-4.65%	20,523.87	21,524.03
Nifty Logistics	-4.80%	23,011.45	24,172.64
Nifty Infrastructure	-5.11%	8,712.45	9,182.00
Nifty Energy	-5.20%	39,063.75	41,205.55
Nifty Automobiles	-5.36%	23,799.30	25,146.90
Nifty PSU Banks	-5.81%	6,283.90	6,671.25
Nifty Consumer Durables	-5.82%	39,672.45	42,121.90
Nifty MNC	-6.00%	29,144.90	31,006.00
Nifty Oil & Gas	-6.21%	11,352.10	12,104.25
Nifty CPSE	-6.45%	6,481.20	6,928.30
Nifty Realty	-6.97%	974.35	1,047.30
Nifty Metals	-7.23%	9,048.95	9,753.90
Nifty India Defence	-8.71%	6,097.51	6,679.02

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 25, 2024. Out of the 20 key sectors, all 20 sectors gave negative returns amidst valuation concerns and pressure of Q2 results. The selling in small and mid-caps was a lot more intense this week. The Nifty and the Sensex lost over 2%, while the smaller indices lost over 6% in the week. Among the large cap indices, IT was the only sector to close almost flat, while banking fell almost a par with the Nifty and the Sensex.
• Let us start with the gaining sectors. There were no gaining sectors in the week with all the 20 sectors delivering negative returns for the week. The only saving grace was the IT sector which fell by just about -0.16%, amidst strengthening dollar. Banking overall fell by -2.51%; which is around the fall in Nifty and the Sensex. Even traditional defensives like healthcare, FMCG, and consumer durables took it on the chin as there are some major questions being raised about urban demand in India, even as rural demand has been showing some green shoots of recovery.
• Let us now turn to the sectors that fell the most during the week. For the week, all the 20 key sectors were in the negative. However, if you look at the big losers, it was across 2 major themes viz. Consumption and government owned enterprises. In both the cases, there have been valuation concerns and that has made them all the more vulnerable to the sell-off. Defence was, once again, the worst performer of the week at -8.71%. Among the other big losers in the week were Metals -7.23%, Realty -6.97%, CPSE -6.45%, Oil & Gas -6.21%, MNCs -6.00%, Consumer Durables -5.82%, PSU Banks -5.81%, and automobiles -5.36%. As we stated earlier, the big losers were from the consumption and government ownership space. The only exception was metals, where the sector has corrected after China did not bring forth the aggressive stimulus it had promised.
• For the week, all the 20 sectors gave negative returns. The arithmetic average of returns of these 20 sectors stood at gainers stood at -4.88%, which was not exactly reflective of the extent of the stress that the sectors were under. Out of the 20 sectors under review, a total of 11 sectors fell more than -5% in the week while 14 sectors fell more than -4% during the week. The bias has clearly been on the downside. If you look at specific themes; government ownership theme contracted by -6.99%, while consumption as a theme was down -6.04%. These are clearly the two themes that took on most of the pressure of the fall in markets during the week.

During the week, Nifty VIX spiked sharply to 14.63X levels; which has accentuated the sell-on-rises undertone of markets during the week. For the market to turn buy-on-dips, the VIX will have to dip to around the 11.0-11.5 levels; which looks elusive at this juncture.

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

For the latest week to October 25, 2024, FPIs were net sellers of $(962) Million for the fourth week in a row. From a broader perspective, FPIs have been net sellers in equities to the tune of $10.22 Billion in the first 18 trading sessions of October. There were limited data points during the week gone by.

• The RBI Monetary Policy Committee (MPC) published the minutes of the October 2024 meeting with the clearly message that inflation control was the primary driver. If one looks at the individual statements of the MPC members, the concerns are less on growth and more on consumer inflation. There were specific concerns over energy inflation, in the light of the geopolitical risks in West Asia as well as the risk of core inflation bouncing back. Of course, food inflation remains the big challenge for now. After the minutes, the broad street consensus gravitated towards the view that rate cuts may eventually commence in February 2025, instead of December 2024.
• FPI selling was rampant in the week, as FPIs were net sellers in 4 out of the 5 trading session in the week. FPIs have now sold a record $10.22 Billion in Indian equities in October 2024 with 4 trading session still to go. This does raise some questions about how the new Samvat could pan out.
• If Israel and Iran have been close to a full-fledged war for over a year now, this week they came very closer to a full-fledged war. The geopolitical situation in West Asia continued to be very fluid. Israel and Iran may still not be openly at war, but the casualties of the war have been rising and global trade is already paying a huge cost. There are concerns that, if Israel intensifies its attacks on the Hamas, Hezbollah, and on Iran, then the rest of the Arab world may not remain neutral for long.
• Oil prices bounced sharply in the week from $73/bbl to $76/bbl amidst the rising geopolitical uncertainty impacting markets. However, any price above $80/bbl does not seem very likely on account of the pressure on oil demand, especially with China reducing its reliance on imported crude. Also, the gross refining margins (GRMs) are under stress and that is likely to put a cap on oil price spike. What could spook oil is if the war situation worsens and Iran blockades the Straits of Hormuz.
• In the US presidential election update; the race between Donald Trump and Kamala Harris has been neck-and-neck with Trump gaining acceptability in recent weeks. While Trump was always the X-factor, he seems to have improved his ratings and the odds are now equal on both sides. Political observers underline that in a close contest, Trump would be the clear favourite in most of the swing states.
• Even as big Canadian investors in India like Fairfax group and the Canadian Pension Board (CPPIB) have been steadfast in their India exposure, India and Canada have seen their diplomatic ties touching a new low. Both countries have called back their key diplomats and also expelled the diplomats of the other nation. Justin Trudeau has been apparently trying to cosy up to the Sikh extremists in Canada, which is a sizable and influential group in major parts of Canada. It remains to be seen if better economic sense prevails or whether it eventually impacts the investment flows both ways.
• In the latest quarter (Q2FY25), out of the more than 600 companies that have announced results, revenues are up 11.5% while net profits are up 0.58%. That is also largely driven by positive cues from IT and BFSI. Pressure is visible in sectors like FMCG, hospitality, aviation, infrastructure, oil & gas, metals, and chemicals.

The next will see big data flows on core sector, fiscal deficit as well as US PCE inflation and the advance estimates of Q3GDP in the US.

STOCK MARKET TRIGGERS FOR COMING WEEK TO NOVEMBER 01, 2024

The coming week to November 01, 2024 will be critical as the FPIs will once again test the market internals; especially in the light of the second quarter financial results. Here are some of the key trends to watch out for in the coming week.

• In the previous week, the Nifty was down -2.71%, the BSE Sensex was down -2.24%, and the NSE Next-50 was also sharply down -6.15%. For cues to the next week, one needs to look at the sectoral mix of gainers and losers in the coming week. Broadly, we do expect that the large caps next week will continue the theme of positive on IT, neutral on banks and negative on consumption. It looks like the consumption theme is not likely to see any sort of revival in the near future. Among smaller indices; the Mid-cap index closed down this week by -5.75%, while the small cap index closed a full -6.45% lower. The message appears to be that in the midst of all the macro risks, alpha hunting has taken a back seat. Risk off buying to favour large caps over small and mid-caps will be the trend.
• It is going to be a busy week for the corporates. Le us first look at key record dates. Some of the key corporate action record dates scheduled for the coming week include; Infosys, Route Mobile, CRISIL,GCPL, NTPC, TECHM (Dividends); RIL, Reddy Labs (Split/Bonus); Jubilant (Amalgamation). In addition, key large cap results this week include Bharti Airtel, Sun Pharma, Adani Enterprises, IOCL, Adani Ports, Cipla, Maruti Suzuki, Larsen & Toubro, Ambuja. Key mid-cap results this week will include Tata Power, ABSL AMC, BHEL, Federal Bank, IGL, PNB, LIC Housing, Tata Tech, Canara Bank, SBI Cards, and Voltas Ltd.
• In global high frequency data flows, the US GDP first advance estimates to be out in the coming week is likely to be relatively robust. After 3% GDP growth in Q2, Atlanta Fed Q3 GDP growth is pegged at 3.2% to 3.4%. If growth is robust, the Fed may go slow on rate cuts. In other global data flows, the US PCE inflation will be in focus as it is likely to taper closer to 2%. The sustained low PCE inflation around 2% will hold the key to Fed cutting rates in the forthcoming FOMC meetings.
• Two important macro data points for India are out next week. This includes the core sector output and the fiscal deficit data for H1FY25. One view is that if the fiscal deficit remains low, pressure may build on RBI to cut rates in December to give a boost to infrastructure. The street is expecting that the government may intervene and give a boost to infrastructure capex in this year too.
• The focus on FPI flows, oil and the USDINR will continue in the coming week. FPIs sold equities to the tune of $10.22 Billion in the last four weeks. However, it is expected that the FPI sentiments may change post Mahurat trading on November 01, 2024. Already, global investors are losing patience over China delaying its stimulus plans. Oil prices to be in focus amidst the rising geopolitical risk in West Asia. The tensions in West Asia are likely to keep oil on the boil, with Brent up to $76/bbl in the week. All that pressure is also showing on the USDINR, which has now stayed above ₹84/$ consistently.
• With all the uncertainty on hand, there are no IPOs opening in the coming week. Most IPO issuers are tad cautious about the market volatility and the FPI selling. However, there are IPO closures and listings slated for the week. Afcons Infrastructure IPO closes this week, plus 3 IPO listings of Deepak Builders, Waaree Energies, and Godavari Biorefineries will also happen.
• Let us finally turn to the major data points across the world. Key data points from US markets include JOLTS, HPI, GDP, PCE inflation, Real Consumer Spending, API stocks, Pending home sales, jobless claims, and PMI. Key data points from the rest of the world (ROW) region includes GDP, consumer confidence, inflation, unemployment (EU); Jobs, PMI, BOJ interest rates (Japan); and PMI (China).

The coming week will be critical as it will help decide if the market fortunes are likely to be visibly better after the Mahurat Trading session on November 01, 2024.

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 bounced to 14.63 levels from 13.02. In the last few weeks, VIX has been elevated, since it has to fall 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 24,181, which could now be a resistance zone up to 25,000. The key immediate support for the Nifty will be the 24,000 levels, followed by the longer term support of 23,000 levels. For the Sensex, the key range will be 77,500 to 80,000. However, a key shift in the VIX levels will hold the key to any breakout outside these ranges. That is not visible as of date.
• 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. After all, like in the US, even India is a domestic consumption driven economy.

Nifty and Sensex, next week, will focus on external factors like Fed action and geopolitical risk; and also, on internal factors like Q2 results, consumption triggers, festival demand and RBI rate action!