Weekly Musings – Index performance for week ended February 16, 2024

18 Feb 2024 , 06:25 PM

STOCK MARKET STORY OF FY24

What stands out about the stock market performance in FY24, so far. It is one thing to look at markets on a daily basis. The markets started the fiscal year in April 2023, almost at the lower point of the current fiscal. That was in the immediate aftermath of the Hindenburg fiasco and the correction in the Adani group stocks had literally changed sentiments in the markets overall. For the first 10 months of FY24, the Nifty is up 26.7% and the Sensex is up more than 24%. But it is not just the rise in the Nifty and the Sensex, but the composition of this rise that is a lot more interesting.

Let us look at how this rally in the Nifty and Sensex was presented sectorally. Autos and hydrocarbons were the big drivers of the rally in FY24, yielding over 70% returns at an index level. Among other sectors that beat the index gains were infrastructure, metals, and IT. The tepid sectors were banks and FMCG; and had they participated in the rally; FY24 could have been much bigger. On the thematic side, 2 themes more than doubled in value in FY24. No prize for guessing, but they were Defence and CPSE (public sector undertakings). Among the other thematic stars of FY24 were mobility and logistics; both high priority themes for the Make in India story. Finally, FY24 was about momentum, which outpaced the value theme.

IS THERE A BASE CASE FOR AN INDIA UPGRADE?

In the last few months there have been several demands from within the government for a sovereign rating upgrade. As of now, India’s sovereign rating stays at the lowest investment grade rating, just one notch above speculative grade. That perhaps does not do justice to an economy has been the fastest growing large economy in the world for two yeas and is likely to do an encore in FY25 too. The government has shown resilience in bringing down inflation, without impacting the growth engines; soft landing as it is called. Also, with the current account likely to be in the range of 1.00% to 1.25%, the time is ripe for a rating upgrade. Rating agencies will talk about discal deficit levels, debt to GDP ratio and per capita income, but all that is likely to change in the coming years.

India has addressed most of these issues in recent months. The government has maintained a fiscally responsible stance and has defined an aggressive glide path. India is heavily investing in infrastructure capex, which now accounts for 3.4% of GDP. Per capita income has remained depressed due to high population, but the surge in GDP from $3.5 Trillion to $5.0 Trillion is likely to give a 50% boost to the per capital income too. In short, the rating agencies must now have some genuine reasons to delay an upgrade. Giving a positive rating outlook alone is not sufficient.

BSE SENSEX 30 INDEX – CLOSES THE WEEK AT 72,427

The table captures the movement of the BSE SENSEX 30 for the week to February 16, 2024.

Date	High	Low	Close
16-Feb-24	72,545.33	72,218.10	72,426.64
15-Feb-24	72,164.97	71,644.44	72,050.38
14-Feb-24	71,938.59	70,809.84	71,822.83
13-Feb-24	71,662.74	70,924.30	71,555.19
12-Feb-24	71,756.58	70,922.57	71,072.49
09-Feb-24	71,676.49	71,200.31	71,595.49
	Weekly Returns	+1.16%

Data Source: NSE

Sensex closed the week +1.16% higher, following positive cues from the IIP, inflation and the trade data. After crossing 73,000 mark in January 2024, the Sensex closed this week at 72,427 mark; just about 900 points shy of its all-time highs. Overall, the Sensex gained 831 points in the current week, which is a good recovery compared to the last week. While the undertone of inflation, IIP growth and trade data remains positive, the generic indices like the Sensex remain cautious about the spillover effects of the Red Sea crisis and the eminent risk of the US Fed not giving up its hawkish stance with respect to the US monetary policy.

NIFTY 50 INDEX – CLOSES WITH GAINS FOR THE WEEK

The table captures the movement of Nifty 50 index in the week to February 16, 2024.

Date	High	Low	Close
16-Feb-24	22,068.65	21,968.95	22,040.70
15-Feb-24	21,953.85	21,794.80	21,910.75
14-Feb-24	21,870.85	21,530.20	21,840.05
13-Feb-24	21,766.80	21,543.35	21,743.25
12-Feb-24	21,831.70	21,574.75	21,616.05
09-Feb-24	21,804.45	21,629.90	21,782.50
	Weekly Returns	+1.19%

Data Source: NSE

Nifty closed the week very close to its highest point and is just about 150 points short of its all-time highs. FPIs remained net sellers in the week to the tune of $84 Million, after being net sellers in 7 out of the last 8 weeks. In terms of sectoral performance, it is Oil, IT and Autos that continue to drive the Nifty and it was no different this week also. However, with rising uncertainty in the market and the impending national elections, the VIX stayed above 16.0 levels. One thing that has been deterring the FPIs from buying back into India is the higher risk levels in the market due to elevated VIX. Also, the Indian economy continues to be very vulnerable to oil prices. Nifty closed the week with gains of 258 points.

NIFTY NEXT 50 INDEX – BIG ACTION IN POTENTIAL INDEX STOCKS

The table captures the movement of Nifty Next 50 for the week to February 16, 2024.

Date	High	Low	Close
16-Feb-24	58,694.90	58,393.60	58,586.15
15-Feb-24	58,241.20	57,931.60	58,185.90
14-Feb-24	57,806.70	56,274.70	57,672.40
13-Feb-24	56,939.95	55,701.90	56,893.05
12-Feb-24	57,698.70	56,104.00	56,323.70
09-Feb-24	57,834.60	56,263.40	57,432.90
	Weekly Returns	+2.01%

Data Source: NSE

The Nifty Next 50 generally mirrors the Nifty and this week, it smartly outperformed the Nifty with 2.01% gains in a rather tight and lacklustre market. 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 to the 57,586 levels and is at its lifetime high. The Next 50 index gained 1,153 points; after gaining 1,493 points and 1,649 points in the previous two weeks. Railway, IT, and defence stocks continued to rally with PSUs also joining in the action.

NIFTY MID-CAP 100 INDEX – CLOSES FLAT FOR THE WEEK

The table captures the movement of Nifty Mid-Cap 100 in the week to February 16, 2024.

Date	High	Low	Close
16-Feb-24	49,210.10	48,897.65	49,131.95
15-Feb-24	48,896.10	48,583.40	48,821.90
14-Feb-24	48,494.85	47,096.50	48,331.90
13-Feb-24	47,908.20	46,943.25	47,835.65
12-Feb-24	49,142.90	47,526.55	47,675.80
09-Feb-24	49,395.70	48,040.75	48,889.05
	Weekly Returns	+0.20%

Data Source: NSE

The Nifty Mid-Cap index gained 243 points or 0.20% as alpha hunting took a back seating and the focus shifted back to the large cap index stocks. As oil and the USDINR have turned very volatile in recent weeks, the investors are getting more cautious about mid-ca stocks. They would still prefer the safety of large caps at this juncture. This could be an opportunity for the mid-caps to get into attractive value zone. However, mid-cap index valuations have sobered after the latest quarterly results announcement. 

NIFTY SMALL-CAP 100 INDEX – COMES UNDER PRESSURE

The table captures movement of Nifty Small Cap 100 in the week to February 16, 2024.

Date	High	Low	Close
16-Feb-24	16,263.15	16,164.50	16,194.00
15-Feb-24	16,120.60	16,006.70	16,105.20
14-Feb-24	15,916.05	15,389.60	15,896.05
13-Feb-24	15,664.90	15,225.85	15,643.75
12-Feb-24	16,295.95	15,560.30	15,617.05
09-Feb-24	16,565.20	16,007.55	16,269.30
	Weekly Returns	-0.46%

Data Source: NSE

The Small Cap 100 index had closed flat in the previous week and had gained 5.64% in the week before that. This week, small cap index was the only generic index to give negative returns of -0.46% as there has been a rush out of riskier small cap stocks. With fresh allocations of retail investors and domestic mutual funds favouring small caps, the index can revive rapidly. The success of small caps will largely depend on retail investors’ appetite.

BANK NIFTY INDEX – BANKS GET AN INFLATION BOOST

The table below captures the movement of BANKNIFTY in the week to February 16, 2024.

Date	High	Low	Close
16-Feb-24	46,693.40	46,264.40	46,384.85
15-Feb-24	46,297.70	45,590.20	46,218.90
14-Feb-24	46,170.45	44,860.75	45,908.30
13-Feb-24	45,750.40	44,819.55	45,502.40
12-Feb-24	45,748.50	44,633.85	44,882.25
09-Feb-24	45,718.15	44,859.15	45,634.55
	Weekly Returns	+1.64%

Data Source: NSE

The Bank Nifty exhibited a sharp bounce in the week as it picked up traction after the inflation announcement for January 2024. CPI inflation in India fell by 60 bps to 5.10% and that is an indication for banks that RBI could embark on rate cuts by the second half of 2024. That is good news for the banks as it allows them to lend at lower rates and is also value accretive to their debt portfolios. In the last few weeks, the positive action has been focused on PSU banks while private banks have struggled due to falling NII, narrowing NIMs and steep valuations, especially of private banking stocks.

NIFTY IT INDEX – SHOWS RESILIENCE IN A TOUGH WEEK

The table captures the movement of Nifty IT index in the week to February 16, 2024.

Date	High	Low	Close
16-Feb-24	38,516.55	38,131.85	38,477.05
15-Feb-24	38,270.45	37,735.60	37,999.55
14-Feb-24	37,844.70	37,200.05	37,775.40
13-Feb-24	38,258.50	37,605.30	38,204.00
12-Feb-24	38,285.35	37,770.00	37,998.00
09-Feb-24	38,082.05	37,443.75	37,699.25
	Weekly Returns	+2.06%

Data Source: NSE

In the last 5 weeks, the Nifty IT index has gained 8.6% and this week it added another 2.1%. The IT rally started after the Q3FY24 numbers. The real story has been one of resilience. Indian IT companies have propped up their digital share and despite tech spending falling sharply, the impact on Indian IT stocks has been minimal. Solid dividend yields by Indian IT companies is the other factor holding the IT stocks higher.

NIFTY OIL & GAS INDEX – CONTINUES TO FLATTER

The table captures the Nifty Oil & Gas index for the week to February 16, 2024.

Date	High	Low	Close
16-Feb-24	12,074.30	11,824.90	11,854.10
15-Feb-24	11,982.20	11,655.90	11,926.40
14-Feb-24	11,663.50	11,158.45	11,639.85
13-Feb-24	11,376.50	11,137.85	11,289.65
12-Feb-24	11,561.15	11,190.60	11,239.05
09-Feb-24	11,754.35	11,301.80	11,541.40
	Weekly Returns	+2.71%

Data Source: NSE

In our latest analysis of the big sectoral drivers of the FY24 stock market story, oil & gas turned in the second best sectoral performance after autos. Returns of over 70% in FY24 is incredible, but what is more stunning is That bulk of these returns came since October 2023. The sharp improvement in the performance of oil and gas companies has been the big driving factor. With valuations and attractive dividend yields, the oil stocks presented a delectable amalgam of growth, momentum, and value to investors. 

NIFTY AUTO INDEX – BETTING ON BIG RATE CUTS

The table captures the movement of Nifty Auto index in the week to February 16, 2024.

Date	High	Low	Close
16-Feb-24	20,515.05	20,074.10	20,423.45
15-Feb-24	20,029.10	19,811.95	19,981.70
14-Feb-24	19,770.80	19,257.10	19,716.00
13-Feb-24	19,554.00	19,235.90	19,433.05
12-Feb-24	19,653.15	19,364.50	19,419.60
09-Feb-24	19,713.35	19,365.20	19,576.00
	Weekly Returns	+4.33%

Data Source: NSE

With gains of 4.33% in the latest week, the Auto index has gained 11% in the last four weeks. The auto sector was the top performing sector of FY24; yielding more than 70% returns at an index level in just about 10 months. Now the big bet is on automobile affordability. With inflation coming down rapidly and growth still robust, the markets are of the view that rate cuts could be bigger and more intense, helping auto stocks. The rates cuts are likely to be driven by high real rates of interest and a bet on reversion of interest rates to pre-COIVD rates; which is 135 bps lower than current levels.

NIFTY FMCG INDEX – CONTINUES TO LAG THE MARKETS

The table captures the movement of Nifty FMCG index in the week to February 16, 2024.

Date	High	Low	Close
16-Feb-24	53,643.90	53,186.70	53,518.60
15-Feb-24	53,997.65	53,265.40	53,321.35
14-Feb-24	53,951.70	53,138.40	53,839.05
13-Feb-24	53,534.80	53,232.65	53,432.05
12-Feb-24	54,036.00	53,231.50	53,292.95
09-Feb-24	54,007.80	53,452.75	53,867.10
	Weekly Returns	-0.65%

Data Source: NSE

In the last 5 weeks, the FMCG index has lost more than 8.3% and remains the only major index that has given negative returns in calendar 2024. The pressure of weak rural demand was also evident in the Q3FY24 results. While urban demand has been buoyant, it has failed to offset the weak rural demand. Most FMCG players like Hindustan Unilever, ITC, Tata Consumer and Britannia had reported less than flattering results. FMCG is the only heavyweight sector exerting downward pressure on the Nifty and Sensex.