Market outlook for the week (30-Sep to 04-Oct)

30 Sep 2024 , 12:08 PM

SECTORAL STORY IN THE WEEK TO SEPTEMBER 27, 2024

The week to September 27, 2024 saw the Nifty and the Sensex closing positive for the third week in a row. During the week the FPIs infused $2.38 Billion into Indian equities while US data flows were largely supportive. For instance, the Q2-2024 US GDP came in at 3.0% while the PCE inflation for August came in 30 bps lower at 2.2%. For now, the data focus for the coming week will be on the US unemployment rate for September 2024, as well as the India current account deficit. The latter is expected to have increased in Q1-FY25. Here is how the 20 key sectors performed in the week to September 27, 2024.

Sectoral Index	Weekly Returns	Index (27-Sep)	Index (20-Sep)
Nifty Metals	7.02%	10,064.60	9,404.30
Nifty Oil & Gas	5.01%	13,128.25	12,501.35
Nifty Automobiles	4.61%	27,610.75	26,394.55
Nifty Energy	3.96%	44,545.00	42,850.00
Nifty CPSE	3.85%	7,289.85	7,019.75
Nifty PSU Banks	3.41%	6,853.75	6,628.00
Nifty MNC	3.23%	32,735.55	31,711.65
Nifty Mobility	2.72%	23,362.99	22,744.88
Nifty Logistics	2.71%	26,170.52	25,480.71
Nifty Infrastructure	2.47%	9,689.10	9,455.40
Nifty Healthcare	1.60%	14,883.30	14,649.30
Nifty Realty	1.47%	1,117.80	1,101.60
Nifty Non-Banks	0.69%	28,195.69	28,002.18
Nifty India Defence	0.67%	6,716.48	6,671.77
Nifty IT	0.26%	42,312.60	42,204.40
Nifty Consumer Durables	0.08%	43,806.50	43,770.15
Nifty Banks	0.08%	53,834.30	53,793.20
Nifty FMCG	-0.04%	65,845.45	65,870.80
Nifty Private Banks	-0.38%	26,960.25	27,062.35
Nifty India Digital	-0.92%	9,561.85	9,650.80

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 September 27, 2024. Out of the 20 key sectors, the gainers again dominated, in the aftermath of the 50 bps rate cut by the Fed and the favourable macro data in the US. A total of 17 sectoral indices gave positive returns for the week, with 3 sectoral indices recording negative returns. The sectors that delivered the best gains were the commodity plays like oil and metals. IT sector continued to face pressure for second week in a row on dollar weakness concerns.
• Let us start with the top gaining sectors of the week. The gainers were dominated by the commodity plays. Among the top gainers in the week, Nifty Metals +7.02%, Nifty oil & gas +5.01%, Nifty Automobiles +4.61%, Nifty Energy +3.96%, and Nifty CPSE +3.85%. Metals gained in the week on the back of China stimulus, which is expected to boost Chinese demand. The downstream oil & gas sector got a leg-up from lower crude oil prices, while the auto sector gained from lower crude prices and expectations of the RBI also joining the rate cut bandwagon.
• What about the sectors giving negative returns. Nifty India Digital was at the bottom of the heap contracting by -0.92% in the week on concerns that an economic slowdown could hit tech spending as well as pricing power. Private banks also came under pressure, losing -0.38% in the week on expectations that Q2-FY25 would see tepid growth in loans and deposits by private banks. FMCG was flat to negative, but that was more a breather after a frenetic rally in the last 10 weeks.
• With 17 out of 20 sectors giving positive returns in the week, the arithmetic average of returns of these 17 gaining sectors stood at 2.58%, while the arithmetic average of the 3 losing sectors stood at -0.45%. However, the returns were quite dispersed across the board. Out of the 17 companies giving positive returns in the week, 7 sectors gave over 3% returns, 10 sectors gave over 2% returns, and 12 sectors gave over 1% returns.

During the week, Nifty VIX remained subdued around the 11.9X levels; although it has shown a tendency to bounce from lower levels. With the Fed action over and the trajectory being clear now, the VIX should settle around more acceptable levels.

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

For the latest week to September 27, 2024, FPIs underlined their position as net buyers to the tune of $2.83 Billion. From a broader perspective, FPIs have infused $9.7 Billion in last 5 weeks and $19 Billion in last 15 weeks. More importantly, the US GDP and PCE inflation data were positive from a market perspective. Here is what drove FPI sentiments in the week.

• There was some big news on the IPO front with digital IPOs making a comeback after a gap of almost 3 years. Calendar 2024 has already seen 6 major new-age IPOs collecting more than ₹14,500 crore between them. Some of the prominent names that completed a successful IPO were Brainbees Solutions (FirstCry), Ola Electric, and Go Digit General Insurance. However, there is more to come with big guns like Swiggy and MobiKwik also coming in the last quarter of 2024. There are also other mega IPOs on the anvil like the ₹10,000 crore IPO of NTPC Green and the ₹25,200 crore IPO of Hyundai India.
• Oil prices fell sharply in the week on demand and supply concerns. For the week, the price of Brent Crude slipped to $71/bbl. On the supply side there are concerns that OPEC may get back to normal output, pushing down prices further. At the same time, with signs of a slowdown in China, the demand for crude is likely to be under pressure. However, in the upcoming OPEC meeting, the big guns are likely to relent under pressure as OPEC had little success in regulating the price of crude oil.
• There are risks building up in West Asia and it promises to be a tinderbox for now. Israel has been fighting relentless wars on two different fronts. Firstly, there is a war on Hamas, which is entrenched in the Gaza strip and Palestine. The bigger war is being fought by Israel against Lebanon, which is home to the dreaded Hezbollah. Even as Israel fights Hamas, Hezbollah, and the Houthis; it is virtually fighting a proxy war of attrition with Iran, which has been supporting all the three extremist groups.
• In big news, the price of gold continued to rally and has now gotten within striking distance of $2,700/oz. Here 1 oz refers to a troy ounce, which is approximately equal to 31.1035 grams of gold. Gold prices have rallied sharply on the back of the 50 bps rate cut by the Fed. A rate cut reduces the opportunity cost of holding gold and makes it more attractive as an asset class. Also, the strife in the Middle East and West Asia has increased the safe haven demand for gold.
• The central government has just announced its market borrowing calendar for the second half of FY25 at ₹6.61 Trillion. That is approximately 47% of the full year target and is consonant with the 4.8% fiscal deficit target for FY25. Clearly, the fiscal deficit is unlikely to overshoot in FY25. A controlled borrowing environment is good news for FPIs as it means that fiscal prudence and lower interest rates. This will make equity valuations more attractive with a lower weighted average cost of capital to discount future cash flows. This excludes ₹2.47 Trillion borrowings via 91-day, 182-day, and 364-day T-Bills, but includes the issue of green bonds by the government and its agencies.
• The third and final estimate of US Q2 GDP was announced during the week. It has been maintained at 3.0%. Additionally, the first quarter GDP growth was also upgraded from 1.4% to 1.6%; while the previous GDP estimates of Q3 and Q4 last year have been cut making the trend look a lot more secular than erratic. It is interesting to note that the Q2-2024 GDP growth has virtually doubled over the first quarter. That brings us back to the million dollar question; whether the fears of hard landing are really justified or have been blown out of proportion. That is something we have to find out, but for now the GDP growth in the US looks to be ruling out the hard landing argument.
• A day after the GDP data, the US Bureau of Economic Analysis also announced the PCE inflation for August 2024. Surprisingly, the PCE inflation for the month was 30 bps lower at 2.2%. Effectively, this is just about 20 bps away from the eventual 2% inflation target of the Federal Reserve; although this could be a temporary flash in the pan and may have been triggered by the sharp fall in energy inflation. In terms of the components of the PCE inflation basket, food inflation was lower by 10 bps while core inflation on yoy basis was up by 10 bps at 2.7%. However, thanks to the sharp fall in Brent Crude prices amidst demand concerns; the energy inflation fell nearly 700 bps and dipped deep into the negative zone, pulling down the headline PCE inflation also by 30 bps to 2.2%. This reinforces the aggressive stance on rate cuts adopted by the Fed, to a great extent.
• After dominating the Nifty and Sensex for a long time, it looks like the BFSI stocks are gradually losing heft, especially the banks. Consider these numbers. Between September 2023 and September 2024, the weightage of the banks in the Nifty 50 index has come down from 32.0% to 27.7%. That is largely because the private banks have lagged the other industrial sectors. However, the shift has been more pronounced in favour of industrials as well as to the IP oriented industries like IT and Healthcare. These sectors have cornered most of the incremental market cap weight in the last one year; which is a positive signal as it is in sync with the overall growth story.

A lot will now depend on how the second quarter results of Indian companies pan out in the next few weeks; the cost of funds and the impact on solvency ratios will have a huge impact.

STOCK MARKET TRIGGERS FOR COMING WEEK TO OCTOBER 04, 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 04, 2024.

• For the week to September 27, 2024; the Nifty rallied by +1.50% while the Sensex rallied by +1.22%. Even the intermediate Nifty Next-50 rallied sharply by +3.09%. Large caps were helped by the oil & gas sector and the autos. The action was relatively mixed on smaller stocks with the Nifty Mid-cap index gaining just about +0.29% and the Nifty small cap index closing -0.47% lower during the week. For the coming week, the trend appears to be that large caps may still dominate as the confidence in alpha hunting may take some more time to make a comeback. In the coming week, the sector focus will be on metals and mining. With hopes of a sharper stimulus by China, metal index was the top gainer last week, and that trend could sustain for the time being.
• Fed speak will be closely watched in the coming week for key speeches. Among the prominent speakers in the coming week will be Michelle Bowman, Raphael Bostic, and Jerome Powell. One can expect critical clues ahead of the Fed minutes slated on October 09, 2024. Another key global data point will be the unemployment data, which will be out on Friday. It is likely to remain static at 4.2% for September, underling sustained rate cuts, at least, till the end of 2024.
• There are some key India data points in the coming week. For example, the India Q1 Current Account Deficit estimate will be out on Monday. The Q1-CAD is expected to be sharply higher compared to Q4 of last year. Also, the core sector growth for August 2024 is slated to be announced on September 30, 2024. Last month, it was at 6.1% and that is likely to be nearly sustained in August too. In addition, the Controller General of Accounts (CGA) will announce the August update to the FY25 fiscal deficit this week. For now, 4.8% fiscal deficit as a share of GDP looks realistic.
• In some landmark data points in the coming week, the forex reserves are expected to finally cross the psychological threshold of $700 billion with the RBI limiting its intervention in the dollar selling market. Also, the PMI manufacturing and PMI services will be put out this week and both are likely to sustain their near record levels of PMI manufacturing at above 56 and PMI services at above 58 levels.
• Finally, the key data points from the US markets to be keenly watched in the coming week include Powell Speak, Unemployment rate, JOLTS, Atlanta Fed Q3 GDP, jobless claims, factory orders, and API crude stocks. In data from the rest of the world (ROW), major data points will be PMI, CPI, Jobs (EU); IIP, PMI, BOJ Speak (Japan); PMI Composite (China); CAD, GDP, PMI, HPI, MPC Speak (UK).

Clearly, it will be a decisive and critical week in terms of data flows. Let us now turn to how the Nifty and Sensex are likely to trade in the coming week, in terms of levels.

PARTING THOUGHTS ON NIFTY AND SENSEX NEXT WEEK

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

• Last week, VIX fell sharply to 11.8 levels. In the last few weeks, VIX has been very volatile and unpredictable; but lower levels will create a buy-on-dips market.
• Nifty is in the uncharted territory of 26,100-26,300, with strong support at around the 25,300 levels. After the Fed statement, action shifts to the RBI reaction.
• Sensex has finally broken above the resistance range of 83,500-84,000 levels and its next resistance is 86,000. The range of 78,000-79,000 is a key support level for the index.

The action now shifts to the RBI current account deficit (CAD) and the US jobs data as well as the Fed minutes in the week after next.