Weekly Musings – Index performance for week ended August 11, 2023

14 Aug 2023 , 09:49 AM

The week to August 11, 2023 saw the Nifty struggling in a very narrow range of 19,400 to 19,600. Even as the Nifty closed the week 45 bps lower, the benchmark index lost value in the last couple of days to close below the 19,500 mark. The good news is that the NSE VIX, despite a small rally, is still low at 11.52, which largely limits the downside risks in the markets. However, it was essentially the global factors that had an impact on Indian stock markets; especially the rating downgrade by Fitch and the banking downgrade by Moody’s.

The previous week had seen a rather surprising news of Fitch downgrading US debt one notch from AAA to AA+. While the knee jerk reaction was there across global markets, the US dollar index was hardly perturbed. While US policymakers and economists came out strongly against the wisdom of such a downgrade, there was more to come. Moody’s downgraded a slew of US banks and that had its spillover impact on Indian banks and financials too. Overall, it was a rangebound week with an underlying sell-on-rises theme in the market for the week. (For live impact, check market map)

NIFTY 50 INDEX – NOW 19,500 BECOMES NIFTY RESISTANCE

The table below captures the movement of the Nifty 50 index in the week to August 11, 2023.

Date	High	Low	Close
11-Aug-23	19,557.75	19,412.75	19,428.30
10-Aug-23	19,623.60	19,495.40	19,543.10
09-Aug-23	19,645.50	19,467.50	19,632.55
08-Aug-23	19,634.40	19,533.10	19,570.85
07-Aug-23	19,620.45	19,524.80	19,597.30
04-Aug-23	19,538.85	19,436.45	19,517.00
	Weekly Returns	-0.45%

Data Source: NSE

In the last couple of months, the Nifty had successfully breached through some very strong resistance levels like 18,400, 18,800, 19,500 and 19,800. However, in the last 3 weeks, the Nifty got tantalizingly close to the 20,000 mark, but has retreated ever since. Now it is making lower highs and has settled below the 19,500 mark as of the close of the week to August 11, 2023. What led the Nifty lower in the week. Banks was the main player in the fall, followed by FMCG, as we shall see in detail later on. However, there was some respite coming from the IT sector which benefited from a weak rupee while upstream oil gained from higher crude prices in the Brent market.

The markets were spooked by the US inflation spiking by 20 bps for the month of July 2023. There are already concerns that India headline inflation could breach 6% mark in July and August and that is not too encouraging; especially at a time when India CPI inflation had fallen all the way to the 4.25% mark. Also, the latest IIP data for June 2023 shows pressure on manufacturing coming from the export oriented sectors like basic metals, textiles, and computer hardware. At best, markets are likely to stay ambivalent from here on.

NIFTY NEXT 50 INDEX – ALMOST MIRROING THE NIFTY FALL

The table captures the movement of Nifty Next 50 index in the week to August 11, 2023.

Date	High	Low	Close
11-Aug-23	44,862.50	44,508.00	44,566.70
10-Aug-23	45,009.50	44,578.00	44,676.15
09-Aug-23	44,983.05	44,728.25	44,948.15
08-Aug-23	44,989.65	44,547.75	44,838.80
07-Aug-23	44,930.95	44,696.85	44,838.45
04-Aug-23	44,913.90	44,627.80	44,765.00
	Weekly Returns	-0.44%

Data Source: NSE

In the previous week, the Nifty Next 50 had been under pressure and that trend continued in the latest week also, as the Nifty Next 50 fell by 44 bps. It almost mirrored the trend and performance of the Nifty 50 during the week. FPI selling was also visible 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 after several weeks of rally. Overall, the Nifty Next-50 also showed signs of tiring amidst FPI selling. It is increasingly starting to mirror the trend in the Nifty 50.

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 11, 2023.

Date	High	Low	Close
11-Aug-23	38,148.50	37,791.20	37,836.15
10-Aug-23	38,163.95	37,850.95	38,007.60
09-Aug-23	38,058.40	37,756.40	38,037.00
08-Aug-23	37,984.05	37,578.75	37,912.50
07-Aug-23	37,847.95	37,615.85	37,824.15
04-Aug-23	37,715.05	37,419.75	37,630.60
	Weekly Returns	+0.55%

Data Source: NSE

Mid cap index crossed the coveted 38,000 mark in the week although it closed just below that level. Mid-cap stocks tend to be vulnerable to any shifts in the crude oil prices and the rupee value and both were stacked up against Indian mid-cap stocks due to the Fitch downgrade. However, after falling in the previous week, the mid-cap index is back to its winning ways. The Nifty Mid-Cap index ended the week with just 55 bps of gains as it tapered on the last day of the week. Clearly, alpha hunting appears to be the name of the game for the mid-cap index, more so at a time when large cap stocks are increasingly becoming a mirror of an index fund.

NIFTY SMALL-CAP 100 INDEX – LIMITED IMPACT OF MACRO FACTORS

The table captures the movement of Nifty Small Cap 100 index in the week to August 11, 2023.

Date	High	Low	Close
11-Aug-23	11,836.35	11,734.55	11,748.35
10-Aug-23	11,869.50	11,745.35	11,769.95
09-Aug-23	11,839.90	11,765.40	11,825.15
08-Aug-23	11,779.60	11,664.20	11,755.95
07-Aug-23	11,798.35	11,710.40	11,724.30
04-Aug-23	11,765.10	11,669.20	11,698.05
	Weekly Returns	+0.43%

Data Source: NSE

The Small-Cap 100 index was largely rangebound and the performance was not as flattering as we have seen in recent weeks. Small caps may be immune to global news flows but they do tend to be vulnerable to a spike in crude oil price as well as a weakening of the rupee vis-à-vis the dollar. Nifty Small Cap index rallied more than 20% in last 2 months, so some tapering was always on the cards. The small cap index closed the week with 43 bps of gains. One concern is that most small cap mutual funds have kept inflows in abeyance due to lack of adequate supply of quality paper. At worst, there was some profit book at peak levels.

BANK NIFTY INDEX – US DEBT DOWNGRADE REMAINS OVERHANG

The table below captures the movement of BANKNIFTY in the week to August 11, 2023.

Date	High	Low	Close
11-Aug-23	44,571.25	44,120.90	44,199.10
10-Aug-23	44,980.35	44,418.40	44,541.80
09-Aug-23	44,975.00	44,533.75	44,880.70
08-Aug-23	45,096.85	44,817.85	44,964.45
07-Aug-23	45,011.35	44,773.85	44,837.50
04-Aug-23	45,118.05	44,520.55	44,879.50
	Weekly Returns	-1.52%

Data Source: NSE

The Bank Nifty was once again a casualty of the Fitch debt downgrade. However, the fall in the latest week to August 11, 2023 at -1.52% was sharper than the 120 bps fall in the previous week. That is because, Moody’s downgraded US banks in a rather surprising move and that has rubbed off on the Indian financial stocks too. Also, there are concerns that the best part of the NIM story may have played and Q1FY24 may be the last quarter of supernormal profits for banking stocks. That was reflected in banks correcting sharply for the second week in a row. This marks the third successive week of fall for the Bank Nifty index. However, one cannot wish away the fact that the Bank Nifty has rallied to all-time highs over the last 4 months. What is more significant is that out of the $17 billion of FPI flows in last 3 months, nearly $6 billion went into financials. 

NIFTY IT INDEX – ENJOYING BENEFITS OF WEAK RUPEE

The table captures the movement of Nifty IT index in the week to August 11, 2023.

Date	High	Low	Close
11-Aug-23	31,164.30	30,764.50	30,819.15
10-Aug-23	30,967.75	30,722.20	30,867.00
09-Aug-23	30,964.70	30,590.55	30,940.05
08-Aug-23	30,910.55	30,670.15	30,824.95
07-Aug-23	30,809.00	30,451.35	30,779.25
04-Aug-23	30,555.80	30,027.30	30,436.10
	Weekly Returns	+1.26%

Data Source: NSE

The last two weeks have literally belonged to the IT stocks, which his rather surprising as most analysts remain cautious on Indian IT. In the previous week, the Nifty IT index had gained a smart 3.21% on the back of a weak rupee. That trend continued in this week with the Nifty IT index gaining another 126 bps in this week. Post the downgrades by Fitch and Moody’s has been a sharp weakening of the Indian rupee as it closes in on 83/$. The week rupee is value accretive for Indian IT due to its predominant earnings in US dollars.

NIFTY OIL & GAS INDEX – HIGHER CRUDE PRICES HELPS UPSTREAM

The table captures the movement of Nifty Oil & Gas index in the week to August 11, 2023.

Date	High	Low	Close
11-Aug-23	8,054.35	7,993.80	8,019.25
10-Aug-23	8,076.30	8,014.30	8,046.55
09-Aug-23	8,052.80	7,931.35	8,043.50
08-Aug-23	8,015.60	7,944.95	7,962.75
07-Aug-23	7,994.90	7,939.95	7,974.70
04-Aug-23	7,990.15	7,921.90	7,952.00
	Weekly Returns	0.85%

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 was a major gainer in the week and that contributed substantially to the oil & gas index due to its weight. Downstream players like IOCL and BPCL remained under pressure for the week. The rally in the crude oil prices to above $86/bbl resulted in a positive performance by Reliance Industries and that took the oil index higher for the week.

NIFTY AUTO INDEX – AUTO NUMBERS HAVE A TRYST WITH REALITY

The table captures the movement of Nifty Auto index in the week to August 11, 2023.

Date	High	Low	Close
11-Aug-23	15,488.40	15,355.75	15,378.10
10-Aug-23	15,522.80	15,400.60	15,444.80
09-Aug-23	15,502.55	15,272.60	15,486.20
08-Aug-23	15,452.60	15,280.60	15,343.65
07-Aug-23	15,441.60	15,333.85	15,390.90
04-Aug-23	15,513.55	15,218.60	15,328.40
	Weekly Returns	0.32%

Data Source: NSE

Autos have been one of the biggest stories in the market in the last few months. Not much has changed fundamentally for the sector, but the focus is largely on a return to reality. Also, there have been several headwinds of late. Domestic demand appears to be plateauing and the key markets of the Euro Zone are slowing. While two-wheelers have put up a good show, weak agricultural output and higher rural inflation are likely to put pressure on auto stocks. After the auto index lost 135 bps in the previous week, it has been largely neutral in the latest week to August 11, 2023.

NIFTY FMCG INDEX – VALUATIONS COME BACK TO HAUNT FMCG STOCKS

The table captures the movement of Nifty FMCG index in the week to August 11, 2023.

Date	High	Low	Close
11-Aug-23	51,825.60	51,265.50	51,351.70
10-Aug-23	52,242.50	51,609.15	51,728.65
09-Aug-23	52,249.30	51,620.65	52,206.20
08-Aug-23	52,257.65	51,752.70	51,924.40
07-Aug-23	52,107.20	51,789.50	52,072.50
04-Aug-23	52,520.00	52,014.65	52,050.65
	Weekly Returns	-1.34%

Data Source: NSE

The FMCG index is trading at close to its 52-week high and the 134 bps correction comes on top of the 172 bps correction in the previous week. Along expected lines, the FMCG sector has seen profit booking on a consistent basis. Weak rural demand, competition in the domestic market combined with stiff valuations, makes it a tough industry to operate in.

What we deciphered from the weekly market data

Here are the major takeaways from the week ended August 11, 2023. 

• While 19,500 is the latest resistance for the Nifty, global cues have exerted pressure on frontline stocks. The Fitch downgrade of US debt is the latest risk factor, and that has been compounded by the recent downgrade of US banks by Moody’s.

   

• FPI flows have taken a break in the last couple of weeks, but FPIs have infused $17 billion in the last 3 months and that does not change. Markets will remain ambivalent till there is clarity on the inflation front in the coming weeks.

While 19,500 level remains a key resistance, low to moderate VIX of 11.52 creates a buy-on-dips market. Resistances may be exasperating, but downside risks are limited too.