Weekly Musings – Index performance for week ended August 04, 2023

5 Aug 2023 , 06:43 PM

The week to August 04, 2023 saw the Nifty struggling in the range of 19,300 to 19,500. Even as the Nifty closed the seek 66 bps lower, the Nifty did manage to bounce back sharply on Friday to close above the 19,500 mark. The good news is that the NSE VIX is still very low at 10.57, which largely limits the downside in the markets. However, it was more of global factors that had an impact on Indian stock markets; especially the rating downgrade.

The week started with a rather surprising news of Fitch downgrading US debt one notch from AAA to AA+. While the knee jerk reaction was there across all global markets, the US macros like the dollar index were hardly impacted. Not just the Treasury Secretary, Janet Yelle, but even senior economists like Mohammed El Erian and Paul Krugman have dismissed the rating downgrade as weird. After all, it comes at a time when the debt ceiling crisis is off for 2 years and the US has managed to contain inflation without a hard landing; at least for now. Hence, the global conviction on the potence of the rating downgrade was quite low. (For live impact, check market map)

NIFTY 50 INDEX – MANAGES TO CLOSE ABOVE 19,500

The table below captures the movement of the Nifty 50 index in the week to August 04, 2023.

Date	High	Low	Close
04-Aug-23	19,538.85	19,436.45	19,517.00
03-Aug-23	19,537.65	19,296.45	19,381.65
02-Aug-23	19,678.25	19,423.55	19,526.55
01-Aug-23	19,795.60	19,704.60	19,733.55
31-Jul-23	19,772.75	19,597.60	19,753.80
28-Jul-23	19,695.90	19,563.10	19,646.05
	Weekly Returns	-0.66%

Data Source: NSE

In the last few weeks, the Nifty had successfully breached through some very strong resistance levels. This included key levels like 18,400, 18,800, 19,500 and 19,800. In the last 2 weeks, the Nifty got tantalizingly close to the 20,000 mark, but has retreated ever since. In the latest week to August 04, 2023, all the heavyweight sectors, except IT, came under pressure, which had its collateral impact on the Nifty too; which closed 66 bps lower. 

The only major sector that closed flat in the green was IT, which gained from the weak rupee. There were several global concerns for the Indian markets at a macro level. The Fitch downgrade of US debt had its collateral impact on most EMs, although Nifty did bounce sharply on Friday. Also, the factory numbers from Euro Zone and China were weak. In addition, the PMI numbers from India were robust, but lower sequentially. There is also an element ambivalence building up ahead of the RBI policy announcement next week.

NIFTY NEXT 50 INDEX – LOSES STEAM DURING THE WEEK

The table captures the movement of Nifty Next 50 index in the week to August 04, 2023.

Date	High	Low	Close
04-Aug-23	44,913.90	44,627.80	44,765.00
03-Aug-23	44,621.10	44,150.05	44,414.55
02-Aug-23	45,242.35	44,316.55	44,645.80
01-Aug-23	45,408.55	45,170.60	45,263.25
31-Jul-23	45,368.45	45,151.70	45,287.00
28-Jul-23	45,187.95	44,732.50	45,166.40
	Weekly Returns	-0.89%

Data Source: NSE

In the previous week, the Nifty Next 50 had outperformed the mainstream index, giving returns of 2.22% returns for the week. However, in the latest week, most of the wannabe Nifty stocks showed pressure. FPI selling was also seen in a number of non-Nifty stocks, which also put pressure on the Nifty Next-50 index. The mid-cap enthusiasm in FMCG stocks and digital stocks has also been waning; one of the reasons for the tepid performance of the Nifty Next-50. Overall, the Nifty Next-50 also showed signs of tiring amidst FPI selling.

NIFTY MID-CAP 100 INDEX – ALPHA HUNTING IS STILL THE KING

The table captures the movement of Nifty Mid-Cap 100 in the week to August 04, 2023.

Date	High	Low	Close
04-Aug-23	37,509.25	37,715.05	37,419.75
03-Aug-23	37,206.70	37,408.00	37,100.85
02-Aug-23	37,697.35	37,707.45	36,874.00
01-Aug-23	37,853.65	37,884.45	37,666.90
31-Jul-23	37,432.00	37,757.15	37,352.65
28-Jul-23	37,234.10	37,378.05	37,135.95
	Weekly Returns	+0.73%

Data Source: NSE

Interestingly, it was the mid-cap index that took a massive 800 points hit on the day after the Fitch downgrade of US debt. Mid-cap stocks tend to be vulnerable to any shifts in the crude oil prices and the rupee value and both looked like going against India after the Fitch downgrade. The Nifty Mid-Cap index ended the week with 73 bps of gains as it bounced back sharply in the last 2 days of the week to close in the positive. It looked like alpha hunting had returned to the markets as quickly as it had vanished in the aftermath of the Fitch downgrade. With large caps tiring, as is evident from the heavyweight indices, the action is shifting to mid-caps as investors look at fresh ideas for alpha. With rates topping, rupee stabilizing and oil prices in a range, mid-caps still hold the upper hand.

NIFTY SMALL-CAP 100 INDEX – SHOWING POCKETS OF VALUE

The table captures the movement of Nifty Small Cap 100 index in the week to August 04, 2023.

Date	High	Low	Close
04-Aug-23	11,765.10	11,669.20	11,698.05
03-Aug-23	11,650.65	11,521.60	11,609.85
02-Aug-23	11,791.55	11,496.20	11,596.05
01-Aug-23	11,805.45	11,746.05	11,782.80
31-Jul-23	11,712.90	11,639.00	11,702.85
28-Jul-23	11,636.50	11,560.00	11,600.30
	Weekly Returns	+0.84%

Data Source: NSE

The Small-Cap 100 index was relatively immune to the global news flows as these companies are largely very focused local plays. It must be remembered that the Nifty Small Cap index has rallied over 20% in last 2 months, so some amount of tapering is warranted at these levels. However, the small cap index still closed the week with 84 bps of gains. Despite small cap mutual funds keeping inflows in abeyance, there is enough appetite in the market for quality small cap stocks. Of course, some profit booking is par for the course. A 20% rally in the small cap index would mean super performance by individual stocks.

BANK NIFTY INDEX – CORRECTS ON US DEBT DOWNGRADE

The table below captures the movement of BANKNIFTY in the week to August 04, 2023.

Date	High	Low	Close
04-Aug-23	45,118.05	44,520.55	44,879.50
03-Aug-23	45,038.45	44,279.40	44,513.45
02-Aug-23	45,404.90	44,720.90	44,995.70
01-Aug-23	45,782.75	45,471.05	45,592.50
31-Jul-23	45,694.90	45,359.75	45,651.10
28-Jul-23	45,727.75	45,238.80	45,468.10
	Weekly Returns	-1.29%

Data Source: NSE

The Bank Nifty was another casualty of the Fitch debt downgrade. The index correctly sharply in the 2 days after the Fitch downgrade, although it did gain on Friday. The Bank Nifty still closed the week with a fall of 129 bps over the previous week. This is the second week of fall after the index had corrected -1.32% in the previous week. Within the banking space, it was the PSU banking index that fell sharply, led by SBI after its results disappointed in some pockets. There are also concerns that the heady days of record NIMs may be over and these ratios would be stable or taper in future. This is the index that led the rally in the markets over the last 4 months. Also, out of the $17 billion that Indian equities received as flows from FPIs between May and July, more than $6 billion has gone into financials. 

NIFTY IT INDEX – GAINS SMARTLY FROM WEAK RUPEE

The table captures the movement of Nifty IT index in the week to August 04, 2023.

Date	High	Low	Close
04-Aug-23	30,555.80	30,027.30	30,436.10
03-Aug-23	30,054.35	29,685.15	29,971.10
02-Aug-23	30,259.40	29,801.55	30,043.60
01-Aug-23	30,348.75	29,948.00	30,288.65
31-Jul-23	29,951.60	29,452.35	29,928.45
28-Jul-23	29,829.75	29,339.35	29,490.25
	Weekly Returns	+3.21%

Data Source: NSE

In the last few weeks, the action in IT stocks had gradually shifted from the large caps to mid-cap IT stocks. A slew of mid-cap IT companies were hitting new highs on the back of strong numbers. However, larger IT stocks were under pressure due to pressure on top line, tighter operating margins, and weak guidance. The latest week saw a sharp spike of 3.21% in the IT index on the back of a weak rupee. The rupee weakened to around 82.75/$ after Fitch downgraded US debt ratings a notch from AAA to AA+. This led to outperformance by IT and healthcare stocks, which stand to gain from their revenues being predominantly in dollars. Also, there was FPI buying in IT stocks in July, which also helped the index.

NIFTY OIL & GAS INDEX – HIGHER CRUDE PRICES HITS DOWNSTREAM

The table captures the movement of Nifty Oil & Gas index in the week to August 04, 2023.

Date	High	Low	Close
04-Aug-23	7,990.15	7,921.90	7,952.00
03-Aug-23	7,986.20	7,896.55	7,934.70
02-Aug-23	8,116.15	7,941.00	7,998.45
01-Aug-23	8,165.95	8,100.30	8,110.35
31-Jul-23	8,151.30	8,063.50	8,141.15
28-Jul-23	8,094.50	8,005.35	8,058.20
	Weekly Returns	-1.32%

Data Source: NSE

It was a mixed week for oil companies with the upstream gaining on the back of higher crude prices while the downstream companies came under pressure. Reliance stayed under pressure but the real concern was the weak data coming from Euro Zone and China, which hint at a delay in an economy recovery. That is not good news; either for the upstream oil companies or for the downstream oil companies. Oil index lost 132 bps in the week to August 04, 2023 as global growth concerns started to weigh.

NIFTY AUTO INDEX – JULY AUTO NUMBERS SEE SOME PRESSURE

The table captures the movement of Nifty Auto index in the week to August 04, 2023.

Date	High	Low	Close
04-Aug-23	15,513.55	15,218.60	15,328.40
03-Aug-23	15,489.90	15,316.05	15,379.80
02-Aug-23	15,694.80	15,300.10	15,428.90
01-Aug-23	15,813.90	15,638.70	15,688.70
31-Jul-23	15,738.15	15,512.90	15,708.05
28-Jul-23	15,631.35	15,466.90	15,537.90
	Weekly Returns	-1.35%

Data Source: NSE

Autos have been one of the biggest stories in the market in the last few months. However, there have been several headwinds of late. Domestic demand appears to be plateauing and the key markets of the Euro Zone are slowing. The two-wheelers have still put up a good show, but the monthly auto numbers show signs of pressure on the frontline auto companies, despite flattering results from Maruti. However, the concerns for the market arise from higher food inflation due to delayed and erratic monsoons. This could impact rural demand, which remains a key building block for auto sales. The auto index lost 135 bps in the week to August 04, 2023.

 

NIFTY FMCG INDEX – ACTION SHIFTS TO MID-CAP FMCG SPACE

The table captures the movement of Nifty FMCG index in the week to August 04, 2023.

Date	High	Low	Close
04-Aug-23	52,520.00	52,014.65	52,050.65
03-Aug-23	52,409.80	51,943.05	52,062.35
02-Aug-23	52,538.85	52,103.25	52,368.70
01-Aug-23	52,836.10	52,454.15	52,501.15
31-Jul-23	53,021.50	52,517.05	52,636.85
28-Jul-23	53,035.00	52,500.80	52,964.05
	Weekly Returns	-1.72%

Data Source: NSE

The FMCG index is trading at close to its 52-week high and the 172 bps correction was expected as profit booking was seen on a consistent basis during the week. Mid-cap FMCG stocks also came under pressure during the week. In the case of most of the frontline FMCG companies, the valuations have always been steep and that has only been accentuated by the FMCG rally in the last few months. It is more of tiring at higher levels.

What we deciphered from the weekly market data

Here are the major takeaways from the week ended August 04, 2023. 

• While 20,000 continues to be a resistance for the Nifty, global cues have exerted pressure on the frontline stocks. The Fitch downgrade of US debt is the latest risk factor, even as the hawkishness risk has been reducing globally.

   

• FPI flows have taken a break in the last couple of weeks, but FPIs have infused $17 billion in the last 3 months. Markets are likely to be ambivalent ahead of the Monetary Policy next week. Markets will be keen on the RBI response to rising inflation.

While 20,000 level remains a key resistance, low VIX of 10.57 creates a buy-on-dips market. For now; 20,000 on Nifty looks more a question of when, rather than whether!