Market outlook for this week (25-September to 29-September)

25 Sep 2023 , 06:57 AM

After rallying by 1.98% and 1.88% in the last 2 weeks, the Nifty corrected sharply by 2.58% in the week to September 22, 2023. The week saw the Nifty falling by more than 460 points and the Sensex losing over1,500 points, with most of the damage happening in the last 3 days of the week. The week also saw the Nifty breaking almost effortlessly through critical support levels like 20,000 and 19,800 and closed well below the 19,700 mark. For now, the Nifty still has supports at 19,600 and 19,400; before taking a long term support at the 19,000 levels. While FPI selling and a spike in crude prices were the obvious factors depressing markets, there were two other sentimental factors too.

Firstly, with the Fed holding rates but talking a hawkish language, the markets are certainly worried. In fact, the equity sell-off was visible across markets globally. The rather steep valuations of equities only added to the concerns raised by FPI selling and Fed hawkishness. Fed now only hinted at more rate hikes this year but also guided for lesser number of rate cuts next year. The gist of the story is that even by the end of 2024, the Fed rates would still be above an average level of 5.1%. The second factor was the diplomatic standoff with Canada after Justin Trudeau alleged an India hand in the killing of a Sikh separatist living in Canada. While India has denied any involvement, the sentiments were hit. India and Canada are deeply connected in terms of corporate investments, FPI investments in India and the scores of Indian students and job-seekers lining up for life in Canada.

News flows from the previous week to September 22, 2023

There were 7 major factors that influenced the Nifty movement during the week just gone by.

1. The big event for the week was the Fed meeting outcome. The Fed did not raise rates, but gave a very hawkish indication that rates would be headed up till inflation came under control. In addition, the Fed also hinted that it would now cut rates only twice in 2024 and not four times as suggested earlier. That only means that the global markets have to be prepared for a hawkish situation for much longer. The inflation is not going away in a hurry and therefore the Fed hawkishness is also not going away in a hurry. The result was elevated bond yields and a negative hit to equity valuations.

    

2. The diplomatic standoff with Canada was one of the key factors having a bearing on the Indian markets. It remains to be seen how this diplomatic standoff pans out in terms of economic implications. Markets are worried about the deep linkages between India and Canada in terms of economic dependencies. India relies on Canada as a haven for its students and job seekers, but in the process it also provides the much-needed manpower support to the Candaidan economy. Canada is the seventh largest portfolio investors in India with its pension funds like CPPIB and CPDQ among the biggest institutional investors in Indian equities. There are also corporate level links ranging from Novelis to Tim Hortons. Not to forget, that Canada would be looking at the lucrative and fast-growing Indian market. Any prolonged standoff is not good news.

    

3. FPIs turned net sellers in the month of September to the tune of over $1.22 billion. That comes after the FPIs infused nearly $18.5 billion into Indian equities between May 2023 and August 2023. It is in this backdrop that the September selling looks more disappointing for India. Issues like the Fed hawkishness and the standoff with Canada have had a negative impact on FPI sentiments. For the lates week, FPIs were net sellers to the tune of $648 million and have been net sellers for 3 weeks in succession. 

    

4. Crude prices did not surge in the week but remained confined in the range of $93/bbl to $94/bbl. High crude prices have typically been an overhang for India as India still has to rely on imported crude to meet 85% of its requirements. Goldman Sachs has just issued a note predicting oil at more than $100/bbl and that is when the pressure on the Indian economy starts. Also, other global macro indicators have also been unfavourable for India with US bond yields at above 4.5% and the US Dollar index (DXY) at above 1.05.50 levels. That is adding to the imported inflation already inflicted by crude prices.

    

5. Towards the end of the week, JP Morgan announced that it would Indian bonds into the JP Morgan Emerging Markets Bond Index effective from June 2024. It is not clear if all the concerns of the index providers have been resolved, but this was long overdue. It will have 3 broad implications. Firstly, it will give Indian bonds a better visibility in the global markets. Secondly, it is the first step for Indian debt to be priced at a global level and pave the way for easier fund raising for Indian companies and also for the government. Lastly, this index inclusion will result in nearly $40 billion of passive flows from global index funds and index ETFs into Indian debt. That is likely to offer the much needed succour for the rupee.

    

6. It was another busy week for the IPO market and it looks like the IPO markets are back with a bang. That is also starting to show in the FPI flows into primary markets. What is more interesting is that the extent of subscription and the post listing performance of these IPOs has been quite gratifying, which his keeping the investors interested. It is not just the mainboard, but even the SME IPOs. More than 120 SME IPOs have already hit the SME IPO market in 2023 and it is likely to get closer to 200 by end of the year.

    

7. There is positive news on the cement demand front, and this is not just about the pick-up in cement demand post the monsoons. For FY24, the cement demand is expected to grow by 12% as against just 8% in the previous year. Now, cement demand growth is not just good for cement companies, but cement has strong externalities for economic growth. This is likely to be positive for the markets as it is a direct outcome of the aggressive infrastructure investments being made by the government of India. 

Clearly, the Fed hawkishness and the diplomatic standoff with Canada decided the course of markets last week. Markets were in a state of fear and that appeared to melt towards the end of the week. That positions the market in an interest position to take up the coming week, which is likely to be a week that is heavy on data.

Stock market triggers for the coming week to September 29, 2023

The coming week from September 25, 2023 to September 29, 2023 is likely to be largely influenced by key data flows from India and abroad. The immediate question is whether the Nifty can again breach above 20,000. Here are the major triggers in the stock market for the coming week.

1. For the week gone by, the Nifty closes the week -2.57% lower while the Nifty Next-50 index closed -1.90% lower. The pressure was clearly on the large caps and banks were the worst hit as depicted by the -3.50% correction in the Bank Nifty. The smaller indices continued where they left in the previous week, with the correction continuing. For instance, the Nifty mid-cap index fell -1.69% while small cap index fell -2.48%.

    

2. The big story to watch in the coming week will be the primary markets, where a lot of action is building up. The IPO mainboard will see strong traction in the coming week with the IPOs of JSW Infrastructure, Updater Services and Valiant Labs opening in the coming week while the IPO of Vaibhav Gems will close. There is also action of Rs400 crore in the SME IPO segment. Then there are the likes of Ola Electric that are planning to quicken their entry into Indian IPO markets with mega IPO plans.

    

3. There are 2 major global data flows in the coming week. The all-important US GDP data for June 2023 quarter will see the final estimates being put out. The second estimate had seen a lowering to 2.1% and the markets will be happy to see US GDP growth at 2% or higher. Also, the US BEA will announce the Personal Consumption Expenditure based PCE inflation, which looks set to rise to 3.5%. A sharply higher PCE inflation for August would make rate hikes inevitable in November policy.

    

4. The US markets will also see important voices speaking on rates and inflation. Neil Kashkari and Michelle Bowman (a dove and hawk respectively) will be speaking on rate trajectory in the coming week. More importantly, the final word will belong to Jerome Powell, who will also be speaking during the coming week. Markets will look at them for direction and guidance on rates and inflation.

    

5. RBI will announce India’s current account deficit (CAD) for June quarter this week and the focus would be more on whether the full year CAD projections are likely to cross 2% of the GDP estimate. In addition, the core sector output will be released this week, and it remains to be seen if the 8% reading last month can be improved. Markets will also focus on the fiscal deficit number and the share of GDP to see if 5.3% can be protected.

    

6. FPI flows data will hold the key to next week. In the month of September, FPIs were net sellers of $1.22 billion in first 3 weeks. In addition, there are other unfavourable factors like the volatile rupee rising US bond yields and the spike in the US dollar index (DXY). The markets will also be closely watching if Brent Crude gets closer to $100/bbl.

    

7. There are other key data points that investors will look at. Key data points from US markets include Powell speak, PCE inflation, Q2 GDP final estimate, new homes, API stocks, durable goods orders, jobless claims. In addition, the markets will also focus on data points like inflation and ECB meet in EU; BOJ policy, retail sales and jobs in Japan; Q2-GDP and CAD in UK and finally; industrial profits and CAD in China.

In short, it promises to be an action-packed week, but the overall action would depend on both domestic and global trends.

Can the Nifty stage a comeback this week?

The bull rally was abruptly interrupted this week and investors must realize that a bounce back will not be easy. Nifty options data shows support at 19,500 levels and upsides to 19,800 followed by 20,000. That level is likely to remain a key resistance. Amidst the macro uncertainty, the VIX falling to 10.66 and should be a positive and the technical indicators are also roughly hinting at a similar market outlook.

The coming week will see a more cautious and range-bound Nifty in the light of such heavy data flows. As long as the VIX remains at lower levels, it puts a floor on the market fall, and the market remains a buy-on-dips market; as it is today. The coming week will also be critical in how India handles the diplomatic stand-off with Canada. The markets will keenly watch key data points like PCE inflation and GDP growth in the US as well as core sector growth and CAD in India in the coming week.