Market outlook for this week (February 12 to February 16)

12 Feb 2024 , 07:30 AM

MONETARY POLICY SENDS THE RIGHT SIGNALS

The big news during the week was the announcement of the monetary policy. The RBI, as expected, maintained status quo on the repo rates at 6.50%. That also held the linked raters at the same level; the SDF rate at 6.25% and the MSF / Bank Rate at 6.75%. However, the policy did send out the right signals. It reiterated its growth estimate for FY25 at 7% and the inflation estimate for FY25 at 4.5%. The 250 bps gap between growth and inflation in FY25 is likely to be accretive for growth and also for market sentiments.

The other big signal from the policy was that the rate cuts would not commence before June or August this year. That is hardly surprising. The growth and inflation are comfortable at this juncture and the RBI would not want to upset the applecart. Also, there are the general elections coming up in May this year and a new government will be in place by end of May with the full Union Budget likely in July this year. The RBI would be biding its time till then and only after that are we likely to see any serious monetary policy action.

SECTORAL DICHOTOMIES SHARPEN IN NIFTY AND SENSEX

The week saw some sharp sectoral dichotomies. While the overall Nifty and the Sensex may have closed flat to marginally negative, the sectoral dichotomies were quite sharp. Let us look at the positive side. Oil & gas continued to flatter on the upside. The sector has gained 35% in the last quarter and shows no sign of relenting. The current rally is across upstream oil, downstream oil, and gas companies. The other sector to do very well is automobiles. Despite weak monsoons, the signals of lower interest rates have been positive for autos.

While IT has been mixed in the last few weeks, the pressure on the Nifty and Sensex has come from banking and FMCG stocks. Within banking, the PSU banks continue to flatter, but it is the heavyweight private banks that are struggling in the face of NII growth topping out and NIM margins under pressure. The bigger disappointment in the last few weeks has been the FMCG space. The sector is facing the combined impact of weak rural demand, rising crude prices and thinning margins amidst severe competitive pressures.

MONETARY POLICY AND Q3 RESULTS SET THE TONE

The week to February 09, 2024 was largely driven by the monetary policy and the last phase of quarterly results. Here are the 6 items that impacted the market sentiments.

1. The monetary policy announced by the RBI was the big macro event of the week. The outcome of holding repo rates at 6.5% was along expected lines. However, what gratified the market was the RBI pegging FY25 GDP growth at 7.0% and the FY25 inflation at 4.5%. The broad RBI commentary appears to be that the RBI would eventually like to move rates lower once there is confirmation that inflation was under control. That is more likely to happen in the second half of the year, but the good news is that the macros largely appear to be on target for the Indian economy. 

    

2. The week saw several key results announced. The big story was dichotomy in performances, a story that is true about the quarter as a whole. If you look at the 2,300 companies that have announced results till date, the winners and losers are almost even. This has been one of the slowest growth quarters in last 3 years and that should keep a lid on market moves. This week, Adani Power, Biocon, GAIL, Century Textiles, IOCL, Jio Financials, Tata Power and JSW Steel did better than expected. However, companies like Mahindra Logistics, Tejas Networks, UPL, Piramal Enterprises, India Cements, Tata Communications, Laurus Labs and Godrej Industries underperformed.

    

3. FPI flows were again in the negative during the week with FPI net sellers in equities to the tune of $618 Million. However, the big story of the FPIs has been on the debt front. If FPIs were net sellers in equities to the tune of $3.7 Billion in 2024, they have bought debt to the tune of $4.4 Billion; making them net buyers overall in 2024 overall. Clearly, the asset allocation of FPIs appears to be working in favour of debt, which is understandable considering the direction of yields and the prospects of Indian debt paper being included in the global bond indices of JP Morgan and Bloomberg. 

    

4. After a week of sobering oil prices, Brent Crude again spiked to above $82/bbl. The ceasefire talks between Israel and Hamas broke down and Houthi rebels have intensified their strikes, with recent strikes on India-bound vessels too. While this could lead to a further spike in oil prices, there are bigger concerns. It is very likely that Israel will intensify its strikes on Rafah; the most populated region in the Gaza strip. As civilian casualties rise, repercussions are likely to be broad-based and it could widen the theatre of war in the Middle East. That has larger implications for trade, through the Suez Canal.

    

5. The problems for companies in the digital ecosystem in India continue. Paytm is likely to lose its banking license by the end of this month. That means the company loses its ability to operate its own wallet, run its UPI business and also offer the plethora of financial services that the company is offering. The company is putting up a brave face, but if the ban happens by the end February, it could get really tough for Paytm. Byju’s is another basket case of a digital star gone wrong with debt and payment problems forcing the company to be devalued to almost 1% of its original valuation. In addition, there are a number of listed digital companies that are seeing sustained selling by private equity funds in the recent past. The numbers just don’t seem to be adding up.

    

6. During the week, the Tata group touched the ₹30 Trillion market cap mark for the first time. That roughly translates into $360 Billion of market cap in dollar terms. That compares favourably with the market cap of ₹21.50 Trillion for the Reliance group and ₹15 Trillion for the Adani group. Clearly, the value consolidation is happening more in the big groups and that is where most of the value appears to be gravitating towards. For instance, the Tata group has seen 9% accretion in group market in the first 40 days of 2024, with the likes of TCS, Tata Motors and Tata Power contributing most to the accretion. This is a signal of the shape of market cap drift in the coming months too.

The coming week will be heavy on macro data with inflation data in the US and India as well as IIP and trade data to be announced. These macros are likely to set the tone for the markets in the coming week.

STOCK MARKET TRIGGERS FOR COMING WEEK TO FEBRUARY 16, 2024

Here are some key factors that will have a bearing on stock markets for the coming trading week from February 12, 2024 to February 16, 2024.

1. For the week, the Nifty closed down -0.33%, Sensex closed -0.68% lower while the Nifty Next-50 closed +2.67% higher. The Nifty saw positive cues from the oil & gas, auto and the IT sector while the private banking and FMCG sectors saw a lot of pressure. This dichotomy is likely to continue. Among smaller indices, the Mid-cap index closed +0.85% higher, while the small cap index closed flat with marginal losses of -0.05%. Smaller stocks are likely to face resistance as valuations have run up much ahead of themselves. 

    

2. In the last week of results announcements, some of the key Indian companies to announce results include Eicher Motors, M&M, HAL, Mazagon Docks, Phoenix Mills, Cera, Edelweiss, Borosil & Motherson. The quarter has been the weakest in the last 12 quarters with the gainers and losers almost evenly balanced. The quarter has seen pressure from weak rural sales and the higher manpower costs.

    

3. Inflation will be the big story of the coming week. On Monday, the MOSPI will announce the India inflation. According to Bloomberg estimates, the India inflation is likely to fall sharply from 5.69% in December to 5.09% in January 2024. That is likely to be supported by flat core inflation, lower fuel inflation and sharply lower food inflation. Not just India, but even the US consumer inflation for January is expected to be put out on Tuesday. The Bloomberg consensus is that the US inflation will fall by 40 bps from 3.3% in December to 2.9% in January 2024. Of course, the Fed still relies on PCE inflation, but CPI is the lead indicator and the PCE inflation is already lower at 2.6%.

    

4. The index of industrial production (IIP) growth will be announced by MOSPI on Monday for December 2024. Bloomberg estimates IIP to stay static at 2.4%, although the real focus would be on cumulative 9-month IIP growth. Another related data point would be the producer prices (WPI), which is pegged to taper from 0.73% to 0.53%. Positive WPI is key to ensure that the manufacturers get remunerative prices for their products.

    

5. The January 2024 trade data will be announced on February 15, 2024. The merchandise trade deficit is expected around $20 Billion, the real focus would be on impact of Red Sea crisis on exports and the prospects of imported inflation. The other big factor will be the services trade and the extent to which the services surplus can offset the deficit on the merchandise trade account. 

    

6. FPI flows will be in focus during the coming week, especially in the light of the slew of macro data announcements.  The FPIs had turned net sellers in equities to the tune of $618 Million in the latest week, after a brief respite in the previous week. However, the markets are also closely watching the debt fund flows, which is where the FPIs are doing most of the infusion in the recent weeks.

    

7. With the Red Sea crisis worsening after the collapse ceasefire, the oil prices had spiked last week to $82.4/bbl. The longer trade route and the rising geopolitical tensions will likely keep oil on the boil in the coming week. Traders are already pegging crude getting closer to $90/bbl int the Brent market. 

    

8. It is likely to be a busy week for IPOs. The IPO mainboard will see 1 IPO opening, 1 IPO closing and 5 IPO listings in the week. While the IPO of Vibhor Steel opens this week, the Entero Healthcare IPO closes in the week. In addition, the IPOs of Rashi Peripherals, Jana SFB, Capital SFB, Apeejay Hotels and Entero Healthcare will list this week.

    

9. Finally, let us turn to the global data points to watch. The key US data points include CPI Inflation, API crude, IIP, retail sales, initial jobless claims, PPI, housing starts, business inventories, and EXIM prices. In ROW data, focus will be on Q4GDP, IIP, and Trade balance (Euro Zone); PPI, machine tools orders, GDP, and capacity utilization (Japan); and GDP, inflation, and IIP (UK).

It is likely to be a data heavy next week, with a slew of critical macros hitting the market.

NIFTY AND SENSEX MAY REACT TO RISING VIX

Post the budget week rally, the Nifty now has support at 21,650 / 21,400 levels and resistance at 22,100 levels. On the other hand, the Sensex has support around 71,000 and a resistance around 73,200 levels. The big challenge this week will be that VIX has spiked to 15.5-15.8 levels. This will keep the Nifty and the Sensex under pressure at higher levels. Incidentally, the VIX is likely to stay elevated till the election uncertain gets over around the end of May this year. For the coming week, the focus would be on the key macro data flows like inflation growth and trade data.