Market outlook for this week (October 9 to October 13)

9 Oct 2023 , 06:53 AM

ARE STOCK MARKETS IN A STATE OF FLUX?

The latest week to October 06, 2023 was a week when the Nifty closed flat once again, with marginal losses. It could have been a sharper correction, had it not been for the bounce on Thursday and Friday. It was a truncated week with Monday being a trading holiday. The Nifty fell on Tuesday and Wednesday on concerns over rising hawkishness and expectations of a relatively hawkish tone of the RBI. There were also concerns that the quarterly results may see pressure on the bottom line due to higher inflation risk. However, this was largely neutralized by the sharp fall in crude oil prices. Now, crude has fallen from a recent high of $96/bbl to $84/bbl and that has come as a major relief to the Indian macro equations. The focus now shifts to the coming week, where the focus will be on key data flows; both on the domestic front and the global front.

Even as the risk of the US government shutdown has been put off by 45 days and the Canada issue petering, there is a new geopolitical risk emerging in the Middle East and West Asia. The Hamas fired rockets into Israel from the Gaza Strip and this led to aggressive retaliation by Israel. Any geopolitical risk around the Strait of Hormuz creates a major risk for oil prices and that is something the markets would be wary about. However, the other global risks like a spike in the US bond yields and a spike in the US dollar index (DXY) continued in the current week also. The US bond yields stayed at a 22 year high of 4.8% while the dollar index did face resistance at 107, but the indications are that the dollar will only get stronger from current levels. That means a lot of imported inflation into India. In between, the RBI policy gave hints that it would stay hawkish for a longer period by holding rates at elevated levels. The RBI also dismissed any thoughts of rate cuts in near future.

NEWS FLOWS FROM THE PREVIOUS WEEK TO OCTOBER 06, 2023

There were 7 major factors that influenced the Nifty movement during the week just gone by; and it was a mix of domestic and global factors.

1. The first big factor in the week was RBI policy announcement. The RBI Monetary Policy Committee (MPC) held rates at 6.5%, but other signals were relatively hawkish. It has ruled out rate cuts in the near future and has promised to keep rates elevated for a longer period. The RBI hawkishness manifested in the form of the 10-year India bond yield spiking to 7.34%, the highest level in the last seven months. 

    

2. The second big news flow in the week was the worsening geopolitical equations in the Middle East. The battle for the Promised Land is as old is humanity but in the modern context, such geopolitical uncertainty has larger implications for crude oil prices. That is because the Middle East and West Asia region happens to be one of the major routes for moving oil around the world and that adds to the risk of oil prices going up.

    

3. US bond yields, one of the big risk factors in recent weeks, spiked to a 22 year high of 4.8% and shows no signs of relenting. The Fed and the RBI have both stayed hawkish only changing their hawkish strategy from raising rates to holding rates higher. The impact would still be the same. Rising bond yields in the US has multiple implications for India; both in terms of domestic yields and also in terms of the weakening of the Indian rupee vis-à-vis the US dollar.

    

4. The dollar index (DXY) softened a bit to the 106.20 levels but it still remains very close to the 107 mark. The level of 107 is important for the dollar index as that level has been crossed only three times in the last 40 years with the last two occasions in the last two years. The dollar index has been a big pressure point for the Indian markets. IT not only means that India is importing inflation from other countries, but also forces the FPIs to sell since a weaker rupee means that FPIs earn less in terms of dollar yields.

    

5. The big positive in the week gone by was the sharp fall in crude oil prices. From a recent high of $96/bbl, Brent Crude fell to $84/bbl towards the end of the week. There were concerns that demand could slow down and the OPEC not raising supply cuts also hit the oil prices. Above, since oil is expressed in dollars, any strength in the dollar meant a sharp fall in the oil prices. In fact, dollar strength has been the singular key factor that has pushed oil prices lower in the week.

    

6. Even as IT results are slated to start next week, TCS has given the first indication that they have a Plan-B in place. It has already announced a possible buyback when it meets next week. The last buyback by TCS was worth Rs16,000 crore and it has done about 4 buybacks in the last 5 years. The buyback by TCS will also set the tone for other large IT companies to buyback shares, offering an alternative to IT shareholders see wealth creation, even as the global macros continue to pressure the IT company on constant currency growth in sales and profit margins.

    

7. If one looks at the FPI flows in the week, the FPIs were net sellers to the tune of $962 million. This is the highest net FPI selling in any week since February this year. That is not a very elevating feeling. However, even as secondary markets struggle with FPI outflows, the primary market has already got $3 billion of FPI inflows and the IPO market is looking robust. The collections may have been just about Rs29,000 crore in the first half, but 20 out of the 30 companies that closed their mainboard IPOs in the first half of FY24 have seen positive returns. That is likely to encourage a slew of IPOs in Indian primary markets and Tata Technologies may set the trend in the coming weeks. A line of ticket IPOs are planned for the second half of the fiscal year. 

It has been a mixed week for the markets and that is evident in the rather ambivalent attitude shown by the Nifty in the last two weeks. Risks look almost equally weighted on both sides, so a prolonged phase of rangebound markets cannot be ruled out.

STOCK MARKET TRIGGERS FOR THE COMING WEEK TO OCTOBER 13, 2023

The coming week will be a week of heavy data flows. There are major data points from India and the US and they could have a major impact on the colour and nature of the market movement from here. This could be a rather decisive week for the markets. Here are the major market triggers for the coming week and how they will impact the market story.

• Let us start with the indices first. Nifty closed the week with gains of +0.08% up, Nifty Next-50 closed with losses of -0.19%. Overall, the two principal Nifty indices were flat. Among the smaller indices; the Mid-cap index was down -0.62% while the small cap index was +0.69% higher. The alpha hunting is still cautious and careful but specific stories in small caps like defence, IT, chemicals and BFSI are finding buyer. The trend is likely to broadly continue in the coming week too.

   

• This will be a week of IPO listings. The coming week is likely to see a total of 14 listings, of which only 1 is a mainboard IPO and the rest are SME IPO issues. The coming week is likely to be marked by Tata Technologies date and price band announcement. While it is not as large as other Tata companies, it is likely to set the trend in terms of quality offerings to the public.

   

• Major large cap Q2FY24 results will be announced in the coming week; and the focus would obviously be on the IT sector. Among big ticket results, we have TCS, Infosys Ltd, HCL Tech, HDFC Life Insurance and Avenue Supermarts (D-Mart) coming out next week. There are also several mid-cap results like Angel, Delta and Anand Rathi Wealth slated to announce Q2FY24 results this week.

   

• Needless to say, the focus would continue to be on the US bond yields and dollar index. Incidentally, the US dollar index fell to 106 from 107 but the undertone for the coming week still looks bullish if you go by the Fed hawkishness. That is evident from the US bond yields staying near to its 22-year high level of 4.8%. These two factors are likely to keep Indian markets under pressure in the coming week too.

   

• In big data flows, US Fed will publish FOMC minutes on Wednesday October 11, 2023and the US BLS will publish the CPI inflation also this week. Fed minutes will provide insights into the policy stance of the Fed and long term macro projections made. The US consumer inflation is expected to taper from 3.7% last month, with a sharp fall in the MOM inflation. It holds the key to the PCE inflation later in the month.

   

• In terms of India data flows, the MOSPI will announce India CPI inflation on October 12, 2023. The CPI inflation is expected to fall from 6.83% in August to 5.45% in September as per Bloomberg estimates. At the same time, the WPI inflation is expected to get into positive territory after a gap of 5 months. IIP growth is expected to see a big jump of over 350 basis points for August July; largely led by manufacturing. This is more as a lag effect of the spike in core sector growth. 

   

• The Ministry of Commerce and the RBI will also put out the trade data on goods and services during the week. The merchandise trade deficit had widened to $24 billion last week and is expected to widen marginally this month. Of greater interest is the services trade data as it would have a bigger impact on the current account deficit.

   

• Finally, a look at the key global data points to watch out for in the coming week. In terms of US data points, the focus must be on Fed speak, consumer inflation, Fed minutes, IMF meets, PPI, initial jobless claims, crude inventories, Fed bonds. The focus will be on IIP, and Lagarde Speak in the EU; while the UK focus would be on BOE speak, IIP, GDP and Trade data. Japan data flows include current account balance while China will put out data on New Loans, CPI, and the purchasing power index (PPI).

In a nutshell, it promises to be an action-packed week, but the overall action would depend on an amalgam of domestic and global trends.

WHAT IS THE NEW NORMAL FOR THE NIFTY RANGE?

That is never an easy call as sentiments change at short notice. Nifty options data shows support at 19,500 levels and upside to 19,800. That would largely be a repeat of the current week. In terms of the technical supports and resistances, not much has changed. However, the positive takeaway for the markets is that the VIX has fallen sharply to 10.30 levels. That largely limits downside risks to the market. The big news to watch in the coming week will be the data flows and the quarterly results.