Weekly Musings – Index performance for the week ended October 13, 2023

15 Oct 2023 , 10:45 AM

POSITIVE CLOSE FOR NIFTY AMIDST VOLATILE WEEK

It was a volatile trading week with 2 days of gains followed by 2 days of losses. However, the positive data cues coming from macros like the India CPI inflation, India IIP growth and the trade data, added to the feel-good factor in the markets. Of course, the global headwinds were still there. Fed continued to stay hawkish when it published the minutes of the Fed meeting this week. However, Fed also indicated that there would only one more rate hikes this year with the Fed preferring to pause on higher rates for longer. Also, rate cuts are now likely to be back-ended, just as rate hikes were front-ended in the last 18 months.

FPI selling in the second week was nowhere close to the virulent sell-off in the first week of October. That is also thanks to strong IPO flows in this week. In addition, the macro data flows were positive. The CPI inflation for September came in sharply lower at 5.02% while the IIP growth was sharply higher at 10.3%. In addition, the merchandise trade deficit for September 2023 fell sharply to $19.37 billion while the overall deficit (combining merchandise deficit and services surplus) fell to $4.91 billion. That is likely to be a positive development for the current account deficit. The feel good factor was reflected in Nifty.

WHAT DEFINED NIFTY SENTIMENTS IN THE WEEK

The risks to the Nifty were largely global in nature. There is the worsening geopolitical situation in the Middle East and West Asia as the war between Israel and the Hamas rages on. US has imposed additional sanctions on Russia and it is very likely that they may also impose sanctions on Iran for their alleged role in the Israel attacks. Amidst these geo-political risks, the Fed continues to remain hawkish while inflation data in the US continues to hint at more hawkishness likely in the Fed policy. 

The real story of the week was the contrasting performance of sectors. Heavyweights IT and banking lagged in the week. The weak IT guidance for Q2FY24 and the Fed hawkishness did not help matters. This selling offset by a sharp rally in oil, auto and FMCG stocks. The surge in IIP and fall in rural inflation, triggered gains I FMCG and autos on better rural demand hopes. Oil stocks were influenced by global shifts. (For live impact, check market map)

NIFTY 50 INDEX – ENDS THE WEEK ON A POSITIVE NOTE

The table captures the movement of Nifty 50 index in the week to October 13, 2023.

Date	High	Low	Close
13-Oct-23	19,805.40	19,635.30	19,751.05
12-Oct-23	19,843.30	19,772.65	19,794.00
11-Oct-23	19,839.20	19,756.95	19,811.35
10-Oct-23	19,717.80	19,565.45	19,689.85
09-Oct-23	19,588.95	19,480.50	19,512.35
06-Oct-23	19,675.75	19,589.40	19,653.50
	Weekly Returns	+0.50%

Data Source: NSE

It was a volatile week with 2 days of gains and 3 days of losses for the Nifty. The Nifty fell on the first day, recovered sharply in the next 2 days and eventually tapered in the last 2 days of the week. The Nifty fall on Thursday and Friday was impacted by the rising US risks due to flat inflation at 3.70 and the hawkish tone of the Fed minutes. There were also concerns on the Q2FY24 results after Infosys gave a lower than satisfactory guidance on constant currency sales growth and on operating margins. FPI selling continued to be an overhang although it was nowhere close to the first week of October 2023. The Nifty was pulled down by banking and the IT index, but gained on the back of oil & gas, autos and FMCG.

NIFTY NEXT 50 INDEX – HOLDS THE WEEK ABOVE 45,000

The table captures the movement of Nifty Next 50 for the week to October 13, 2023.

Date	High	Low	Close
13-Oct-23	45,403.00	45,114.95	45,290.30
12-Oct-23	45,435.10	45,285.15	45,342.00
11-Oct-23	45,382.35	45,160.05	45,237.05
10-Oct-23	45,035.05	44,581.00	45,006.20
09-Oct-23	44,605.00	44,251.25	44,407.10
06-Oct-23	44,987.05	44,780.20	44,950.40
	Weekly Returns	+0.76%

Data Source: NSE

In last few weeks, the Nifty Next 50 has shown the tendency to mirror the Nifty, and that evident in the current week too. The Nifty Next 50 did marginally better than the Nifty and also held on to the 45,000 mark during the week. There were bouts of profit booking in non-Nifty stocks. The Nifty Next-50 has faced resistance at the 46,000 mark and that remains the major resistance for now. The hope for this index is in financial services and IT. 

NIFTY MID-CAP 100 INDEX – MID-CAPS SHOW POCKETS OF VALUE

The table captures the movement of Nifty Mid-Cap 100 in the week to October 13, 2023.

Date	High	Low	Close
13-Oct-23	40,641.85	40,348.80	40,506.15
12-Oct-23	40,704.95	40,523.40	40,555.50
11-Oct-23	40,731.15	40,458.65	40,486.25
10-Oct-23	40,325.00	39,921.95	40,285.50
09-Oct-23	39,987.30	39,634.70	39,744.65
06-Oct-23	40,319.35	40,123.85	40,284.70
	Weekly Returns	+0.55%

Data Source: NSE

Mid-Cap index could not break above the 41,000 levels during the current week also, but managed to hold above 40,000, despite briefly dipping below that level. Mid-cap index has incidentally gained more than 35% since the start of the year, so interim corrections are more of noise and should not be taken too seriously. Mid-caps came under pressure amidst rising crude prices and a volatile rupee; and both risks were evident in the current week. A lot of the mid-cap outperformance in the coming weeks will predicate on oil and the USDINR stabilizing in the coming weeks. Alpha is still the big story and driving force in Indian markets; if you look at the predilection of retail investors and domestic mutual funds.

NIFTY SMALL-CAP 100 INDEX – STAYS POSITIVE BUT LOSING MOMENTUM

The table captures movement of Nifty Small Cap 100 in the week to October 13, 2023.

Date	High	Low	Close
13-Oct-23	12,991.75	12,884.30	12,894.05
12-Oct-23	12,968.30	12,917.65	12,950.95
11-Oct-23	12,922.85	12,835.75	12,867.05
10-Oct-23	12,768.95	12,661.40	12,760.25
09-Oct-23	12,721.90	12,567.45	12,609.00
06-Oct-23	12,849.65	12,731.50	12,837.10
	Weekly Returns	+0.44%

Data Source: NSE

In the midst of chaos in markets, the small cap index remained an island of calm. However, it appears to be losing momentum and that is not too hard to fathom. There has been a lot of buying interest in specific mid-cap sectors like railways, healthcare, IT, and defence that are in the news for the right reasons. That is likely to gradually peak out. For now, 13,000 looks the immediate resistance for the small cap index. This index has a direct bearing on the participation of retail investors as that is the route adopted by most retail investors. Record retail investor additions this year should only help small cap stocks. 

BANK NIFTY INDEX – GLOBAL HAWKISHNESS HITS INDIAN BANKS

The table below captures the movement of BANKNIFTY in the week to October 13, 2023.

Date	High	Low	Close
13-Oct-23	44,563.05	44,203.70	44,287.95
12-Oct-23	44,693.05	44,530.05	44,599.20
11-Oct-23	44,710.55	44,411.40	44,516.90
10-Oct-23	44,487.25	44,004.55	44,360.15
09-Oct-23	44,113.20	43,796.75	43,886.50
06-Oct-23	44,500.70	44,242.95	44,360.60
	Weekly Returns	-0.16%

Data Source: NSE

Bank Nifty continued to be under pressure, after the brief rally a few weeks back on the strength of the withdrawal of the I-CRR. That is done and dusted. The hawkish tone of the Fed and sticky inflation in the US remain risk factors for banks. Bank Nifty was also wary ahead of the banking results season as the banking stocks are likely to face the pressure of NIMs flattening out and NII growth slowing. After touching 46,000 levels, the Bank Nifty had dipped below 44,000, but now it is holding steady above the 44,000 mark. The heavyweight HDFC Bank has been under pressure for some time due to margin concerns post the merger with HDFC Ltd. That is making investors jittery about banks; that are already over-owned.

NIFTY IT INDEX – WEAK FY24 GUIDANCE HOLDS DOWN IT STOCKS

The table captures the movement of Nifty IT index in the week to October 13, 2023.

Date	High	Low	Close
13-Oct-23	32,024.35	31,434.10	31,807.95
12-Oct-23	32,556.50	31,907.00	32,003.60
11-Oct-23	32,981.90	32,489.60	32,548.05
10-Oct-23	32,616.35	32,200.25	32,569.45
09-Oct-23	32,638.25	32,203.55	32,308.55
06-Oct-23	32,438.40	32,098.80	32,341.70
	Weekly Returns	-1.65%

Data Source: NSE

If the Nifty IT index bounced by 1.75% in the previous week, the latest week saw a correction of -1.65%. That is not hard to fathom. IT companies results may have been good, but the guidance on constant currency (CC) growth in top line and the operating margins continue to be very subdued and cautious. Global headwinds are still a reality as weak tech spending and pressure on IT margins is likely to hold down the performance of IT companies in the coming quarters. Even the rather generous Rs17,000 crore buyback announced by TCS did not help matters beyond a point. For the week, the NASDAQ also gained 62 bps but that could not help much at a time when the pressure of guidance was the driving factor.

NIFTY OIL & GAS INDEX – EXORCISING GHOST OF WINDFALL TAX

The table captures the Nifty Oil & Gas index for the week to October 13, 2023.

Date	High	Low	Close
13-Oct-23	7,937.55	7,884.45	7,902.50
12-Oct-23	7,911.00	7,830.05	7,905.60
11-Oct-23	7,838.35	7,793.95	7,819.00
10-Oct-23	7,772.25	7,733.20	7,762.70
09-Oct-23	7,753.60	7,688.15	7,708.40
06-Oct-23	7,801.90	7,761.85	7,790.75
	Weekly Returns	+1.43%

Data Source: NSE

After breaking below the 8,000 mark a couple of weeks back, the oil & gas index continued to stay below that mark. The pressure of windfall tax on upstream oil stocks was easing, but the rally in the week was mainly led by Reliance Industries. Of course, downstream oil remains a worry and the recent crisis in the Middle East and West Asia promises higher crude prices. The oil stocks were apparently reacting to that expectation. However, the global oil market is still undersupplied by 2 million barrels of crude per day and that is likely to keep the pressure on oil stocks. It remains to be seen if crude makes another rush for $100/bbl, but it looks very likely with the rising geopolitical risk in the promised land.

NIFTY AUTO INDEX – AUTO SALES HAVE A RURAL STORY

The table captures the movement of Nifty Auto index in the week to October 13, 2023.

Date	High	Low	Close
13-Oct-23	16,468.00	16,229.35	16,444.95
12-Oct-23	16,327.40	16,216.85	16,301.70
11-Oct-23	16,204.25	16,085.20	16,175.80
10-Oct-23	16,059.30	15,877.05	16,028.70
09-Oct-23	15,958.80	15,801.85	15,832.85
06-Oct-23	16,039.80	15,966.40	15,990.65
	Weekly Returns	+2.84%

Data Source: NSE

Auto index was the star of the week gaining a whopping 2.84%. The previous week was tepid due to lower than expected auto numbers for September. However, the current week saw a spike in IIP and a sharp fall in rural inflation. That means; rural demand would be much more inspiring compared to what was imagined in the past. Tractors and two wheelers are likely to gain as good proxies for rural demand. However, auto stocks have already been through a very intense and long rally. Hence that remains a headwind.

NIFTY FMCG INDEX – BETS ON RURAL DEMAND

The table captures the movement of Nifty FMCG index in the week to October 13, 2023.

Date	High	Low	Close
13-Oct-23	52,655.75	52,130.05	52,520.70
12-Oct-23	52,491.40	52,041.15	52,363.95
11-Oct-23	52,342.45	51,913.20	52,254.45
10-Oct-23	51,845.05	51,567.90	51,803.95
09-Oct-23	51,635.15	51,188.35	51,502.85
06-Oct-23	51,725.40	51,359.15	51,577.90
	Weekly Returns	+1.83%

Data Source: NSE

In a week, when the markets were jittery overall, investors saw merit in the safety of FMCG stocks. But there was more to the story. You don’t get a 1.83% rally just like that and the week was about a likely revival in rural demand on the back of sharply lower rural inflation and spike in IIP. The FMCG index closed above 52,500 for the week. At the same time, FMCG companies are discovering new ways to delight customer by launching smaller products, cutting costs, and expanding their basket. That is showing up in price performance.