Market outlook for this week (April 1 to April 5)

1 Apr 2024 , 09:17 AM

WHAT TO WATCH OUT IN THE RBI MONETARY POLICY?

The big event in the coming week will be the monetary policy announcement. The Monetary Policy Committee (MPC) of the RBI will meet for 3 days between April 03, 2024 and April 05, 2024, culminating in the presentation of the monetary policy. This will be the first of the six monetary policies for FY25 and here are the key market expectations from the policy.

• The repo rate is likely to remain static at the level of 6.5%. For now, the RBI has no incentive to bring down rates as the GDP growth continues to be robust. Also, inflation is not posing a major problem to the Indian economy, despite the headwinds caused by the Red Sea crisis. Hence repo rates would most likely stay put; and as a result, even the reverse repo rate rates at 6.25% and the MSF / Bank Rate at 6.75% will stay unchanged.
• The GDP growth forecast for FY25 could see another positive upgrade with the MOSPI already hinting at around 8% GDP growth for FY24 and 7.6% FPI growth in FY25. This is likely to be reflected in the upcoming monetary policy statement in the coming week. India remains the fastest growing large economy in the world.
• Will the RBI change the stance of monetary policy. Despite demands for shifting the policy to neutral, the government would most likely hold the stance of the policy at phased withdrawal of accommodation. That would be a conductive monetary statement with the uncertainties of the general elections looming.
• One cannot rule out a marginal hike to the inflation forecast in the monetary policy. The MPC continues to be conservative about CPI headline inflation, but it is only the core inflation that appears to be tapering. Food inflation continues to be sticky and energy inflation faces global challenges from West Asia and the Red Sea. The RBI may look to marginally hike the inflation estimates by about 25 bps to reflect these risks.
• One thing is clear that the RBI would not act on rate cuts, until the new government is in place and the full budget is presented. That would be around mid-July. RBI may look at rate cuts only after that. However, the markets will be expecting the RBI to offer some sort of indicative guidance on rate cuts. In addition, the markets will also look at the policy to give clarity on two strategies. How does the RBI plan to address rupee volatility and how does the RBI intend to address the widening gap between loan growth and deposit growth in the last few quarters?

The monetary policy statement on April 05, 2024 may be a non-event from an actionable point of view. However, the signals emanating from the RBI on growth, inflation and on the rate trajectory will be closely tracked.

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

The current week being the last week of the month and also of FY24, was a busy week in terms of domestic and global data flows. Here is a quick look at some of the key data points for the week. It must be noted here that some of the data announcements like the CAD, core sector, fiscal deficit, US Q4 GDP, US PCE inflation were all announced after the markets closed for the week. However, the expectations were already built into the markets.

• The big data flow of the week was the current account deficit (CAD), which came in at a subdued $10.5 Billion for Q3-FY24. This is slightly higher than the previous quarter but sharply lower on a yoy basis. The current account deficit was reined in largely because the merchandise trade deficit was under control while the services surplus had grown sharply. This almost led to a neutral overall deficit on the trade account.
• Along with the actual data, the key expectations also have an impact on the markets. For the week, Barclays Research put out the first full year estimate of India CAD at under 1%. Between the end of Q3 and Q4, Barclays expects the cumulative CAD to move from $31.5 Billion to just $35.0 Billion. That would be under 1% of GDP for FY24 full fiscal.
• It is said that what is good for Reliance, is good for the Indian markets. That is not surprising, considering the company’s heft and influence. In a sharp upgrade, Goldman Sachs has raised the price target of Reliance by up to 40% in a bull-case scenario. That is on the back of RIL completing bulk of its capex in the retail and digital verticals.
• For the month of February 2024, the core sector growth (infrastructure growth) came in at a robust 6.72%. Out of the 8 core sectors covered, only fertilizers showed negative growth. Among the big infrastructure basket winners in the month of February were coal, natural gas, and cement. The big surprise package in the month was the positive growth in crude oil extraction. This promises good tidings for IIP, with 40.27% impact.
• The Controller General of Accounts (CGA) also put out the update for fiscal deficit as of the end of February 2024. At the close of 11 months, India has used up 86.5% of the reduced full year fiscal deficit target. That is encouraging and indicates that India could rein in fiscal deficit to the level of 5.8% of GDP in FY24, and subsequently, 5.1% in FY25.
• Two key US data points were released in the week, typically after Indian markets had closed for the week. The fourth quarter GDP estimate for the US economy came in at 3.4%; nearly 20 bps higher than the second estimate. In addition, the PCE inflation inched up by 10 bps for February 2024 at 2.5%, due to pressure from energy inflation. If one were to combine the impact of higher GDP growth and higher PCE inflation, the net effect would be that the Fed would prefer to go slow on rate cuts in 2024.
• That was also broadly borne out by the Fed speak during the week. Christopher Waller, in the earlier part of the week, clearly hinted that it was too early to talk about rate cuts at a time when the inflation situation was still quite fluid. Also, with robust GDP growth, the Fed could afford to wait longer. Surprisingly, Powell echoed similar sentiments towards the end of the week. On the upside, Powell suggested that he would not want any disruptions caused by quantitative tightening at this point. However, there was no talk of rate cuts, hinting that he was more inclined toward the hawks.
• Crude oil prices fought pitched battle in the week, but closed strong at around the $87/bbl level. There is the all-important OPEC meeting in the coming week, so the oil markets would be wary of that. However, 3 things emerged from the week. The ceasefire between Israel and Hamas will not happen in a hurry. Demand for oil will continue to remain robust, as is evident from the US inventory drawdowns. Also, the supply from OPEC Plus will keep the oil markets undersupplied.
• Finally, the one factor that continues to impact the markets is the value of the rupee. Rupee had fallen sharply last week. This week, the rupee remained under pressure due to the US dollar index (DXY) inching up further in the week. For now, the RBI is not intervening and that is likely to make the FPIs jittery, which is evident from the $674 Million of selling in the last 2 weeks.

The one data point that most people are not talking about is the rally in gold prices. In fact, spot gold (XAU) has rallies sharply to the $2,231/oz mark. That is a lifetime high for gold. In the month of March 2024 itself, gold touched new highs around 5 times. That is typically a signal of investors getting jittery about equities. We have to wait and watch.

STOCK MARKET TRIGGERS FOR COMING WEEK TO APRIL 05, 2024

The coming week will be dominated by the RBI monetary policy. However, there will also be other data points to watch out for. The key data points this week will be the Fed Speak by the various FOMC members, giving signals about the Fed thinking on rates trajectory.

• For the week, the Nifty closed 1.04% higher while the Sensex closed 1.33 % higher and the Nifty Next-50 closes 2.43% higher. There is a clear shift towards the large cap names and that trend is likely to continue in the coming week. However, the week also saw a recovery in smaller stocks as the mid-cap index gained 1.61% and the small cap index gained 1.42%. It looks like the retail alpha seekers are likely to stay interested in smaller stocks for now.
• The coming week will be a week of reactions to data points that were announced after the close of markets last week on Thursday. The CAD impact was partially felt in the late really in the markets on Thursday. However, the core sector data and the fiscal deficit update were announced only late on Thursday. Both were positive in the sense that fiscal deficit was on target while core sector growth showed that government investments in capex were showing beneficial lag effects.
• In reaction to big global data late last week, the US Q4GDP at 3.4% was 20 bps better than the second estimate. At the same time, the PCE inflation moved up to reflect the higher energy inflation. If you combine these two data points, the message is that the Fed may not be in a hurry to cut rates and hence no timetable has yet been specified. That is good news for the RBI, which is likely to hold out till July this y ear.
• Obviously, the big even of the week will be the RBI monetary policy on April 05, 2024. Rates are likely to be static, but it remains to be seen if the RBI changes the stance, which is long overdue. Also, the markets are expecting the RBI to upgrade FY25 GDP growth estimates as well as the inflation estimates for next fiscal year.
• There are a slew of high frequency data that will be coming out in the coming week. There is the PMI manufacturing and PMI services; along with the PMI composite that will be announced this week. Also, the auto numbers for March and the GST collection data will be out. GST collections are expected to set a record this March.
• With the OPEC meeting coming up, the Brent prices and the US dollar index (DXY) will be in focus due to their implications for rupee value. There are also important Fed speeches coming up in the coming week.
• In IPO action this week, there is just one big mainboard IPO of Bharti Hexacom. The ₹4,275 Crore IPO will be open from April 03 to April 05, 2024 and will be the only significant IPO in the coming week. SME IPOs are likely to be rather quiet next week.
• In global data; key US data points include Composite PMI, Atlanta Fed GDP, FOMC Member speak, API stocks, OPEC meet, US trade data, non-farm payrolls, jobs. In ROW markets, key triggers are PMI, core CPI, jobs (EU); PMI, household spending (Japan); PMI composite (China); and HPI, Composite PMI (UK).

The coming week will be fairly action packed, with RBI policy being the nucleus of action.

LACK OF VOLATILITY CONFOUNDS MARKETS

For the coming week, Nifty has short-term support at 22,011 and resistance at 22,579. For the Sensex, the support level would be 72,000 and 75,000 will be the resistance on the upside. However, with the positive news flows and VIX down at 12.83, the week should be a buy on dips market. With the F&O expiry and the fiscal year done, the coming week should see fresh allocations by FPIs. A lot would depend on the kind of signals that the RBI gives out in its monetary policy statement on Friday. What continues to confound the market is the absolute lack of volatility, despite elections being round the corner.