Weekly Musings – Index performance for week ended August 25, 2023

28 Aug 2023 , 07:23 AM

The week to August 25, 2023 saw the Nifty struggling in a range of 19,250 to 19,450. Even as the Nifty closed the week 23 bps lower, the benchmark index lost value in the last couple of days to close below the 19,300 mark. The NSE VIX tapered to the 12.08 levels during the week. That is low in absolute terms, but it has bounced from around 10 levels in the last one month. While the current VIX still puts a floor on the downside risk, the VIX has shown tendency to surge suddenly in the past. Broadly, for the week, the banks and IT stocks were outperformers while the oil and gas stocks put pressure. But the big story was that the mid-cap and small cap indices gave a stellar performance for the week, indicating that alpha hunting is back for good in the Indian markets.

Inflation continued to weight on the markets and the uncertainty over how the RBI would react to this spike in inflation. Now it looks like inflation may stay elevated for August and September also and now even the members of the RBI MPC have expressed serious concerns over the rising inflation number. The big story of the week, as well as the feel good factor, was the successful landing of Chandraayan III on the moon. It brough to light the contributions by scores of Indian companies to the Chandrayaan story and defence index was the toast of town during the week. Otherwise, it was largely a flat and lacklustre week, notwithstanding the volatility in the last two days. (For live impact, check market map)

NIFTY 50 INDEX – MAKING LOWER TOPS AND LOWER BOTTOMS

The table below captures the movement of the Nifty 50 index in the week to August 25, 2023.

Date	High	Low	Close
25-Aug-23	19,339.55	19,229.70	19,265.80
24-Aug-23	19,584.45	19,369.00	19,386.70
23-Aug-23	19,472.05	19,366.60	19,444.00
22-Aug-23	19,443.50	19,381.30	19,396.45
21-Aug-23	19,425.95	19,296.30	19,393.60
18-Aug-23	19,373.80	19,253.60	19,310.15
	Weekly Returns	-0.23%

Data Source: NSE

Since the time the Nifty got to the threshold of 20,000, it has been a gradual downward drift for the Nifty. It has gradually broken levels like 19,800, 19,600, 19,500 and 19,300. The retreat from the top has been making lower tops and lower bottoms, which explains the gradual drift in the Nifty. The Nifty levels of 19,300 and 19,000 are the last credible supports for the Nifty before the underlying structure changes. During the recent week, banks and IT did well, autos and FMCG were moderate while oil & gas came under pressure.

The Nifty manifests 3 major concerns in the market. Firstly, global hawkishness and high inflation has created a unique dilemma for the RBI. If they hike rates, borrowing costs get hit and if they do not hike rates, then India could lose out on EM flows. Secondly, FPI flows have largely tapered. However, even in a difficult month like August, FPIs have infused $1.29 billion into Indian equities so far. Lastly, oil and the rupee remain a concern for the markets and that is amply reflected in the volatility in the markets.

NIFTY NEXT 50 INDEX – BOUNCES IN CONTRAST TO THE NIFTY

The table captures the movement of Nifty Next 50 index in the week to August 25, 2023.

Date	High	Low	Close
25-Aug-23	44,531.20	44,008.80	44,087.55
24-Aug-23	44,730.45	44,458.05	44,504.60
23-Aug-23	44,555.95	44,316.25	44,346.00
22-Aug-23	44,359.70	44,142.55	44,324.50
21-Aug-23	44,064.60	43,691.05	44,033.90
18-Aug-23	43,883.10	43,613.25	43,681.00
	Weekly Returns	+0.93%

Data Source: NSE

In the last few weeks, the Nifty Next 50 had shown the tendence to mirror the Nifty. Now the Nifty Next-50 is a collection of stocks that have the potential to become Nifty stocks in the future, or the Nifty aspirants as they are called. Within the Nifty Next 50, some of the digital plays and the plays focused on chemicals and insurance have done very well. Many of them are also industry leaders in their own niche. The good news is that the Nifty Next 50 index has recouped 44,000 on a closing basis after trading below that mark for the last few weeks.

NIFTY MID-CAP 100 INDEX – LOOKS LIKE ALPHA HUNTING IS BACK

The table captures the movement of Nifty Mid-Cap 100 in the week to August 25, 2023.

Date	High	Low	Close
25-Aug-23	38,805.80	38,385.15	38,471.25
24-Aug-23	39,039.00	38,751.25	38,789.00
23-Aug-23	38,831.80	38,641.70	38,694.65
22-Aug-23	38,563.00	38,237.65	38,544.30
21-Aug-23	38,160.85	37,830.65	38,126.40
18-Aug-23	38,003.20	37,715.15	37,815.40
	Weekly Returns	+1.73%

Data Source: NSE

It was a decisively strong week for the Mid-cap index with the 38,000 levels being recouped and the index gaining 1.73% for the week. Mid-cap stocks, by default, tend to be vulnerable to shifts in crude oil prices and the rupee value and both showed signs of stabilizing last week, which did help the mid-cap stocks. In addition, many of the mid-sized Indian banks, which had been stressed by Moody’s downgrade of small and medium sized US banks, also bounced back in the week and that also boosted the mid-cap index. Clearly, the week has seen the return of alpha hunting as traders get more confident on smaller stocks.

NIFTY SMALL-CAP 100 INDEX – ALPHA HUNTING WORKS HERE TOO

The table captures the movement of Nifty Small Cap 100 index in the week to August 25, 2023.

Date	High	Low	Close
25-Aug-23	11,954.80	11,786.45	11,869.45
24-Aug-23	12,054.90	11,904.95	11,918.20
23-Aug-23	11,981.25	11,885.35	11,960.20
22-Aug-23	11,861.20	11,797.55	11,852.50
21-Aug-23	11,768.85	11,696.60	11,756.80
18-Aug-23	11,778.50	11,657.90	11,683.35
	Weekly Returns	+1.59%

Data Source: NSE

Like the mid-cap index, even the Nifty Small-Cap 100 index gained 1.59% during the week, led by alpha related buying interest in smaller stocks. Small caps are largely immune to global news flows but they do tend to be vulnerable to a spike in crude oil price as well as a weak rupee vis-à-vis the dollar. Like the mid-caps, the small caps also benefited from a strong rupee and steady crude oil prices. Of course, the flow restrictions imposed by the small cap mutual funds have kept the interest in small cap stocks at bay. However, HNI appetite and retail appetite for small cap stocks still remain intact. For now, even as the large cap indices struggle to maintain a positive bias, selective buying is emerging in mid-cap and small cap indices. It must be mentioned that defence stocks have helped a good deal.

BANK NIFTY INDEX – HAPPY DAYS ARE HERE AGAIN

The table below captures the movement of BANKNIFTY in the week to August 25, 2023.

Date	High	Low	Close
25-Aug-23	44,359.10	43,983.75	44,231.45
24-Aug-23	44,949.90	44,433.75	44,496.20
23-Aug-23	44,521.65	43,952.05	44,479.05
22-Aug-23	44,151.30	43,938.70	43,993.25
21-Aug-23	44,113.80	43,862.00	44,002.00
18-Aug-23	43,957.65	43,672.45	43,851.05
	Weekly Returns	+0.87%

Data Source: NSE

It may be a little premature to say that but there is something shifting in the banking stocks. The unwinding pressure on banking stocks by FPIs has reduced. Remember, between May and July, when FPIs infused $17 billion, more than $6 billion went into banks and financials. Some amount of unwinding from that level was expected. Also, Moody’s followed up on Fitch rating action by downgrading small and mid-sized banks in the US due to their fragile balance sheets. This also had a rub-off impact on the Bank Nifty. In the last 3 weeks, prior to the latest week, Bank Nifty lost over 100 bps in each of the weeks. Now the stability in the banks appears to be back. After all, in the last one month, Bank Nifty had substantially underperformed the Nifty 50. That had to rectify. Yes, there are concerns that the best of NII growth and NIM expansion may be done and dusted. Even then, banks remain the best proxy for the India consumption boom. 

NIFTY IT INDEX – AGAIN DISHES UP A SURPRISE PACKAGE

The table captures the movement of Nifty IT index in the week to August 25, 2023.

Date	High	Low	Close
25-Aug-23	30,998.95	30,803.00	30,914.55
24-Aug-23	31,212.45	31,004.75	31,112.10
23-Aug-23	31,084.65	30,887.45	30,924.10
22-Aug-23	31,024.60	30,785.70	30,902.40
21-Aug-23	30,987.65	30,597.05	30,937.55
18-Aug-23	30,934.10	30,515.00	30,604.05
	Weekly Returns	+1.01%

Data Source: NSE

The IT index has been a surprise package in the last few weeks, at a time when global funds had almost abandoned Indian IT stocks. For instance, the IT index had gained in previous weeks due to weakening rupee. In the latest week, the IT index gained over 1% despite the strength in the rupee. There is a lot of value buying happening in the large cap IT space and there is also alpha picking seen in mid-cap IT names. To add to the India IT story, the NASDAQ has also been robust and gained 127 points in the latest week, which was another booster for the IT index. The story of IT index reacting to rupee is over. Now it is about the IT index tracking the NASDAQ and the impact of domestic IT funds value hunting in IT stocks. Interestingly, over the last 10 years, IT still remains the star performer; so that settles it.

NIFTY OIL & GAS INDEX – BLAME IT ON THE JIO FINANCIAL EFFECT

The table captures the movement of Nifty Oil & Gas index in the week to August 25, 2023.

Date	High	Low	Close
25-Aug-23	7,906.60	7,804.60	7,838.85
24-Aug-23	7,958.75	7,849.40	7,861.50
23-Aug-23	7,948.20	7,895.85	7,905.75
22-Aug-23	7,971.80	7,906.35	7,930.05
21-Aug-23	7,957.65	7,891.55	7,929.80
18-Aug-23	7,979.50	7,895.45	7,945.10
	Weekly Returns	-1.34%

Data Source: NSE

Oil stocks came under pressure in the previous week after the price of Brent Crude fell from $87.55/bbl to $84.40/bbl. That had an impact on the price performance upstream and refining stocks, which are the real heavyweights in the oil & gas index. But the real reason behind the fall in oil & gas stocks was the sharp fall in Reliance during the week. Jio Financial Services, which listed on Monday, saw a series of lower circuits due to mutual funds and other index funds selling in the counter. This was to offset the impact of the removal of these stocks from the indices. Since RIL shareholders also have a stake in Jio Financial Services, the impact of the fall was reflected in the price of Reliance stock too.

NIFTY AUTO INDEX – CLOSES TEPID ON RURAL DEMAND CONCERNS

The table captures the movement of Nifty Auto index in the week to August 25, 2023.

Date	High	Low	Close
25-Aug-23	15,493.35	15,293.90	15,363.60
24-Aug-23	15,581.85	15,439.45	15,459.30
23-Aug-23	15,553.35	15,471.50	15,498.10
22-Aug-23	15,533.00	15,422.65	15,507.90
21-Aug-23	15,456.15	15,338.65	15,427.60
18-Aug-23	15,436.15	15,329.95	15,391.75
	Weekly Returns	-0.18%

Data Source: NSE

Auto index closed the week, with small losses of 18 basis points over last week. While the demand scenario still looks good, there are headwinds in the form of high rural inflation, which could impact rural demand for auto stocks. Otherwise, auto still remains one of the few prominent consumption plays in India.

NIFTY FMCG INDEX – FLAT SHOW FOR THE WEEK

The table captures the movement of Nifty FMCG index in the week to August 25, 2023.

Date	High	Low	Close
25-Aug-23	51,938.90	51,415.20	51,506.80
24-Aug-23	52,150.05	51,929.40	52,036.75
23-Aug-23	52,315.30	51,839.50	51,888.30
22-Aug-23	52,234.50	51,769.35	52,141.65
21-Aug-23	51,853.55	51,409.40	51,799.00
18-Aug-23	51,586.35	51,167.75	51,464.75
	Weekly Returns	+0.08%

Data Source: NSE

The FMCG index closed the week with marginal gains of just about 8 basis points. During the week, the FMCG index decisively crossed above the 52,000 mark, but fell sharply in the last 2 days as long traders sold off. Weak rural demand, competition in the domestic market combined with stiff valuations, have made it tough for FMCG stocks.

What we read from the markets this week?

Here are the major takeaways from the week ended August 25, 2023. 

• Nifty has breached below the 19,300 support and if it does not bounce back quickly, then 19,000 remains the last credible support. Global hawkishness and the spike in India inflation remain the major challenges for the market.
   
• FPI flows during the week tapered to $278 million, hence most of the index action was coming from domestic players; retail and institutional.