Weekly Musings – Index performance for the week ended February 02, 2024

5 Feb 2024 , 06:38 AM

IT WAS RELIANCE INDUSTRIES ALL THE WAY

If there was one stock that, probably, defined the latest week to February 2022, it was Reliance Industries. There have been several factors going in favour of the company, but it is not often that you get to see a heavyweight stock like Reliance rallying by nearly 9% in six trading sessions. The market cap of Reliance got close to Rs20 trillion or about $240 billion. The million dollar question is; what has triggered such a sharp rally in the stock of Reliance, which almost single-handedly led the Nifty and Sensex rally during the week? Broadly, there were two factors that have triggered the really in Reliance Industries. 

The first factor is more fundamental in nature. The Q3 results showed that even as the O2C business remained under pressure, the high growth businesses like retail and digital had put up a stellar performance. Even oil and gas exploration had grown sharply, albeit on a relatively smaller base. The second major trigger from the implosion of the Zee-Sony deal. Obviously, Zee had to back out of its broadcast contract with Disney and that effectively means that the India business of Disney should be worth just about half of what it is being valued at today. Reliance is obviously going to be a big beneficiary of this shift.

BUDGET BROUGHT FEEL-GOOD FACTOR TO MARKETS

The interim budget was just supposed to be a preparatory note for the full budget, which would only be presented around July 2024 after a new government is in place. However, the interim budget the right noises on some very critical areas. For starters, the budget revised the estimate of fiscal deficit for FY24 from 5.9% to 5.8%. More importantly, it also gave an aggressive glide path by pegging the FY25 fiscal deficit at 5.1%; nearly 20 bps to 40 bps lower than street estimates. That also raises the possibility that the by FY26, the government may actually go much lower than its targeted 4.5% fiscal deficit.

FPI and FDI flows tend to be partial towards fiscal prudence. There are several reasons for the same. Fiscal prudence makes the rating agencies look at the sovereign rating and outlook more favourably. Also, fiscal prudence means that the rupee is more likely to be stable and veer towards strength. But, above all, fiscal prudence also means that the borrowings of the government will be under control. Since the government will not crowd out private borrowings, the bond yields and the rates are also likely to trend lower. We have evidence of that in the latest week. Above all, even the capex allocation (although growing slower), still ensured that there was enough to give a boost to the capital investment cycle.

BSE SENSEX 30 INDEX – ZOOMS PAST 73,000 MARK

The table captures the movement of the BSE SENSEX 30 for the week to February 02, 2024.

Date	High	Low	Close
02-Feb-24	73,089.40	71,948.77	72,085.63
01-Feb-24	72,151.02	71,574.89	71,645.30
31-Jan-24	71,851.39	70,846.04	71,752.11
30-Jan-24	72,142.23	71,075.72	71,139.90
29-Jan-24	72,010.22	70,880.54	71,941.57
25-Jan-24	71,049.46	70,319.04	70,700.67
	Weekly Returns	+1.96%

Data Source: NSE

Sensex closed the week +1.96% higher, following weakness in the previous two weeks. On the last day of trading, the rally took the Sensex to above 73,000 but the sell-off in the last couple hours pegged the close for the Sensex around the 72,085 mark. The impact was largely from the positive notes made by the Union Budget in terms of fiscal deficit and capex. The Sensex ended 1,385 points lower during the week. Actually, once the Sensex crosses the 73,000 mark, there is no resistance till it crosses the 75,000 mark. For now, the focus would be on the upcoming monetary policy and data flows on IIP and inflation.

NIFTY 50 INDEX – BUDGET BOOST FOR INDEX

The table captures the movement of Nifty 50 index in the week to February 02, 2024.

Date	High	Low	Close
02-Feb-24	22,126.80	21,805.55	21,853.80
01-Feb-24	21,832.95	21,658.75	21,697.45
31-Jan-24	21,741.35	21,448.85	21,725.70
30-Jan-24	21,813.05	21,501.80	21,522.10
29-Jan-24	21,763.25	21,429.60	21,737.60
25-Jan-24	21,459.00	21,247.05	21,352.60
	Weekly Returns	+2.35%

Data Source: NSE

The first big trigger came from the Union Budget as fiscal prudence and the capex outlays impressed the markets. Even FPIs turned net buyers to the tune of $126 million, after being net sellers for the previous 3 weeks in a row. For the week, the Nifty gained 483 points. Apart from the FPI flows and the Union Budget, the real trigger came from the 9% rally in Reliance Industries, due to its heavyweight status on the indices. Despite the spike in the market, the VIX remained subdued at around 14.7 levels, still offering support to the Nifty on every dip. Relatively volatility is higher than before, but with the general elections coming up, that is absolutely par for the course.

NIFTY NEXT 50 INDEX – ACTION IS BACK IN THE INDEX

The table captures the movement of Nifty Next 50 for the week to February 02, 2024.

Date	High	Low	Close
02-Feb-24	56,218.25	55,818.60	55,940.30
01-Feb-24	55,858.30	55,168.60	55,508.85
31-Jan-24	55,346.55	54,800.10	55,299.25
30-Jan-24	55,507.15	54,763.75	54,826.20
29-Jan-24	55,081.20	54,369.40	55,012.60
25-Jan-24	54,493.20	53,779.50	54,291.75
	Weekly Returns	+3.04%

Data Source: NSE

The Nifty Next 50 generally mirrors the Nifty and this week, it almost rose in tandem. The Nifty Next 50 is the list of 50 companies with potential to become Nifty companies in the near future. During the week, the index bounced by above 55,000 levels to below the 54,000 levels and closed the week with massive gains of 1,649 points. While railway and defence stocks continued to rally ahead of the budget, railway stocks did see some correction post the budget announcement.

NIFTY MID-CAP 100 INDEX – BACK TO ITS WINNING WAYS

The table captures the movement of Nifty Mid-Cap 100 in the week to February 02, 2024.

Date	High	Low	Close
02-Feb-24	48,796.35	48,416.10	48,477.00
01-Feb-24	48,726.75	47,987.30	48,298.00
31-Jan-24	48,598.05	47,827.30	48,568.60
30-Jan-24	48,296.40	47,731.85	47,791.95
29-Jan-24	48,003.15	47,289.80	47,979.05
25-Jan-24	47,589.25	46,951.50	47,208.65
	Weekly Returns	+2.69%

Data Source: NSE

The Nifty Mid-Cap index spiked by 1,268 points during the week as alpha hunting was back in focus after the Union Budget. Macro announcements like fiscal prudence and higher capex outlay are positive for rupee stability and interest rates. Both tend to help mid-cap companies a lot more. Clearly, the valuations are still favouring the large caps and that is likely to keep mid-caps under pressure in the near future. However, mid-cap index valuations have sobered in the last few weeks and the quarter has been a lot more favourable for mid-cap results than for large-cap results.

NIFTY SMALL-CAP 100 INDEX – SURGE TO RECORD HIGHS

The table captures movement of Nifty Small Cap 100 in the week to February 02, 2024.

Date	High	Low	Close
02-Feb-24	16,388.65	16,225.25	16,277.85
01-Feb-24	16,142.30	15,914.50	16,127.20
31-Jan-24	16,038.95	15,737.00	16,026.30
30-Jan-24	15,817.40	15,657.35	15,673.80
29-Jan-24	15,654.60	15,497.00	15,638.55
25-Jan-24	15,435.30	15,289.15	15,409.40
	Weekly Returns	+5.64%

Data Source: NSE

In the last 2 weeks, the small cap index had fallen close to 90 bps after the index had gained 14% in the 6 weeks prior to that. However, this week was a stellar rally of 5.64% by the small cap index. With fresh allocations of retail investors and domestic mutual funds favouring small caps, the index rallied by 869 points in the week to scale lifetime highs. The expectation is that mutual fund NFOs and SIPs would also favour the small caps a lot more.

BANK NIFTY INDEX – GETS FISCAL DEFICIT BOOST

The table below captures the movement of BANKNIFTY in the week to February 02, 2024.

Date	High	Low	Close
02-Feb-24	46,892.35	45,901.25	45,970.95
01-Feb-24	46,306.90	45,668.35	46,188.65
31-Jan-24	46,179.75	45,071.20	45,996.80
30-Jan-24	45,678.70	45,206.05	45,367.75
29-Jan-24	45,660.35	45,110.90	45,442.35
25-Jan-24	45,139.05	44,429.00	44,866.15
	Weekly Returns	+2.46%

Data Source: NSE

After losing -6.2% in the previous two weeks, the Bank Nifty rallied by 2.46% in the latest week. Remember, the rally in banks post the budget was largely concentrated in PSU banks. The lower fiscal deficit number led to a bond rally and that is likely to be positive for PSU banks with substantial government bond holdings. However, the overhang of the sharp fall in HDFC Bank continues to irk the private sector banks. Overall, the rally in the Bank Nifty could have been much bigger if the private banks had also participated in a bigger way. however, signals of easing bond yields would mean lower rates in future and that also implies that the key risk factors may be out of the way for banking sector.

NIFTY IT INDEX – BUOYED BY FRIDAY RALLY

The table captures the movement of Nifty IT index in the week to February 02, 2024.

Date	High	Low	Close
02-Feb-24	37,663.95	36,729.95	37,323.25
01-Feb-24	36,951.40	36,451.15	36,534.55
31-Jan-24	36,704.50	36,228.85	36,638.40
30-Jan-24	37,022.90	36,321.10	36,381.95
29-Jan-24	36,653.25	36,351.50	36,531.90
25-Jan-24	36,938.60	36,354.10	36,496.20
	Weekly Returns	+2.27%

Data Source: NSE

After gaining 5% in the previous 3 weeks, the Nifty IT index rallied another 2.27% in the latest week. Interestingly, the rally came entirely on the last day of the week, after the index had been static in the first 4 days of trading. The rally came on hints that US tech spending may pick up amidst signals of big order flows for IT companies. What is also keeping investors interested in IT stocks is that the dollar could well strengthen from current levels of the rates stayed higher for longer in the US. However, IT stocks have shown a sharp rally in the last 3 months, so some caution is warranted. 

NIFTY OIL & GAS INDEX – RELYING ON RELIANCE 

The table captures the Nifty Oil & Gas index for the week to February 02, 2024.

Date	High	Low	Close
02-Feb-24	11,159.80	10,816.65	11,111.50
01-Feb-24	10,803.95	10,654.30	10,727.95
31-Jan-24	10,799.30	10,649.80	10,728.65
30-Jan-24	10,938.25	10,636.80	10,656.35
29-Jan-24	10,738.85	10,259.20	10,710.40
25-Jan-24	10,285.35	10,139.60	10,183.30
	Weekly Returns	+9.11%

Data Source: NSE

It is not often that you see Reliance Industries rally 9% in six trading sessions. It is also not common to see oil index rallying by 9.11% in a single week. This comes on top of a 33% gain by the oil and gas index in the last 12 weeks. Clearly, the last 3 months have belonged to oil sector and Reliance has been the heavyweight driver of this really. More importantly, any truce between the Hamas and Israel will lower crude oil prices and give a boost to Indian downstream oil stocks. It will also a big boost to oil marketing companies, where the margins are expected to improve sharply.

NIFTY AUTO INDEX – LOW INTEREST RATE HOPES

The table captures the movement of Nifty Auto index in the week to February 02, 2024.

Date	High	Low	Close
02-Feb-24	19,563.05	19,304.75	19,380.50
01-Feb-24	19,559.55	19,283.35	19,328.70
31-Jan-24	19,257.10	18,861.55	19,227.15
30-Jan-24	19,123.70	18,859.10	18,878.35
29-Jan-24	18,949.60	18,570.75	18,927.25
25-Jan-24	18,709.10	18,434.45	18,614.90
	Weekly Returns	+4.11%

Data Source: NSE

Auto index closed the week with gains of 4.11% after a flat previous week. The auto sector was the top performing sector of 2023; so, some pressure is inevitable. The impact of weak rural demand is already evident on tractor stocks and two wheelers stocks are also feeling the pinch. However, the rally in auto stocks in the latest week was on hopes that lower rates would make all four-wheelers more affordable to customers.

NIFTY FMCG INDEX – RURAL DEMAND CONTINUES WEIGHS

The table captures the movement of Nifty FMCG index in the week to February 02, 2024.

Date	High	Low	Close
02-Feb-24	55,557.50	54,992.90	55,118.40
01-Feb-24	55,792.00	55,114.20	55,215.80
31-Jan-24	55,124.95	54,501.35	55,071.40
30-Jan-24	55,501.40	54,507.40	54,574.35
29-Jan-24	55,470.50	55,047.70	55,139.10
25-Jan-24	55,981.60	54,981.05	55,214.10
	Weekly Returns	-0.17%

Data Source: NSE

After losing 4.5% in the previous 3 weeks, the FMCG index closed -0.17% this week. It was the only major index to close lower. The pressure of weak rural demand was also evident in the Q3FY24 results. While urban demand has been buoyant, it was struggling to fill the gap left by weak rural demand. Heavyweights like Hindustan Unilever and ITC are under pressure and that is also keeping the index under stress. However, defensive bets on the FMCG sector and subdued crude prices could still benefit FMCG stocks.