Weekly Musings – Index performance for week ended January 26, 2024

28 Jan 2024 , 06:35 AM

ACTION SHIFTS TO BUDGET EXPECTATIONS

With less than a week to go for the presentation of the interim budget by Nirmala Sitharaman, there was a sense of caution in the markets. That is not too hard to fathom. Currently, investors are not too sure if the government will treat it like a regular budget (like it did in 2019), or it would treat it like a vote-on-account and focus on the elections first. In between, there is also the election model code of conduct and the government cannot be seen to giving away doles to the people, in a way that would look populist.

But, there are 3 pragmatic concerns ahead of the Union Budget. Firstly, the Union Budget appears to be on track for its 5.9% fiscal deficit target for FY24. However, lower nominal GDP could stretch it to 6.0%. markets are concerned how the government will manage the glide path to 4.5% by FY26 in that case. The second concern is that markets are worried that some ennui may set in after 10 years in power. That is an X factor. Lastly, the growth story could come into question if global markets do not pick up or Red Sea crisis worsens.

FPI SELLING INTENSIFIED IN WEEK TO JANUARY 26, 2024

After selling equities worth $2,033 million in the previous, the latest week also FPI selling to the tune of $1,706 million. Remember, this was just in 3 trading days with 2 holidays in this week. Had it been a full week, things could have been a lot worse. For the month of January 2024 so far, FPIs have been net sellers to the tune of $3.3 billion, which is heavy selling after the kind of roaring inflows in December. FPIs have now been net sellers for 3 weeks in a row. It is not just about profit booking, but also relative valuations of Indian markets.

The spike in Brent Crude was a key factor in the current week. In fact, it was not just that crude crossed $80/bbl, but closed the week at around $83.5/bbl. While the Red Sea crisis has kept the prices of crude at elevated levels, what led to the spurt in crude prices on Friday was the better than expected GDP reading and flat PCE inflation in the US. Against the street expectations of 2% GDP growth in Q4, the US GDP growth first advance estimates came in sharply higher at 3.3%. The downside effect was that crude oil prices surged.

BSE SENSEX 30 INDEX – CLOSES LOWER AT 70,700

The table captures the movement of the BSE SENSEX 30 for the week to January 26, 2024.

Date	High	Low	Close
26-01-2024	71,049.46	70,319.04	70,700.67
25-01-2024	71,049.46	70,319.04	70,700.67
24-01-2024	71,149.61	70,001.60	71,060.31
23-01-2024	72,039.20	70,234.55	70,370.55
22-01-2024	72,026.26	71,312.71	71,423.65
20-01-2024	72,026.26	71,312.71	71,423.65
	Weekly Returns	-1.01%

Data Source: NSE

Sensex closed the week -1.01% lower for the week, following the -1.58% fall in the previous week for the index. There were several headwinds for the Sensex in the week. Overall, this promises to be the quarter of slowest growth in over 3 years. Oil prices are on the uptrend and touched $83.5/bbl after the US GDP data for Q4. Above all, the Red Sea crisis showed signs of worsening after an oil tanker owned by Trafigura was targeted by Houthi rebels. Trafigura and Vitol and Glencore are among the largest global oil traders and this could hit oil prices sharply. The Sensex ended 723 points lower during the week and closed below the 71,000 levels. The next week could be critical as the Union Budget for 2024-25 is likely to be announced on February 01, 2024.

NIFTY 50 INDEX – WEAKNESS SEEN ACROSS SECTORS

The table captures the movement of Nifty 50 index in the week to January 26, 2024.

Date	High	Low	Close
26-Jan-24	21,459.00	21,247.05	21,352.60
25-Jan-24	21,459.00	21,247.05	21,352.60
24-Jan-24	21,482.35	21,137.20	21,453.95
23-Jan-24	21,750.25	21,192.60	21,238.80
22-Jan-24	21,720.30	21,541.80	21,571.80
20-Jan-24	21,720.30	21,541.80	21,571.80
	Weekly Returns	-1.02%

Data Source: NSE

This was a truncated 3-day trading week as trading was shut on Monday due to the Ayodhya Temple inauguration. Friday was a holiday due to Republic Day. The latest week saw FPI selling of $1,706 million. That almost looks like a sentiment turnaround with FPIs selling more than $4 billion in equities in the last 3 weeks. The Nifty has now fallen nearly 1,000 points from the 22,200 levels. During the week, the Nifty closed 219 points lower. Like in the previous week, the VIX spiked close to 15, before settling at around 13.87. That betrays the first signs of volatility in the market, ahead of elections and budget uncertainty. Unlike the previous week, the selling was across sectors, with banking, oil & gas and FMCG worst hit.

NIFTY NEXT 50 INDEX – FALLS SHARPLY IN THE WEEK

The table captures the movement of Nifty Next 50 for the week to January 26, 2024.

Date	High	Low	Close
26-Jan-24	54,493.20	53,779.50	54,291.75
25-Jan-24	54,493.20	53,779.50	54,291.75
24-Jan-24	54,272.05	52,872.95	54,208.30
23-Jan-24	55,227.70	53,009.75	53,294.70
22-Jan-24	55,038.55	54,459.35	54,727.20
20-Jan-24	55,038.55	54,459.35	54,727.20
	Weekly Returns	-0.80%

Data Source: NSE

The Nifty Next 50 generally mirrors the Nifty and this week, it almost fell in tandem. 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 fell from above 55,000 levels to below the 54,000 levels and closed the week with losses of 436 points. While railway stocks continued to rally ahead of the budget, the defence stocks were volatile on uncertainty over defence allocations in the interim budget. 

NIFTY MID-CAP 100 INDEX – PRESSURE ON SMALLER NAMES

The table captures the movement of Nifty Mid-Cap 100 in the week to January 26, 2024.

Date	High	Low	Close
26-Jan-24	47,589.25	46,951.50	47,208.65
25-Jan-24	47,589.25	46,951.50	47,208.65
24-Jan-24	47,505.40	46,081.35	47,423.40
23-Jan-24	48,493.95	46,259.00	46,569.60
22-Jan-24	48,287.20	47,899.15	48,062.80
20-Jan-24	48,287.20	47,899.15	48,062.80
	Weekly Returns	-1.78%

Data Source: NSE

The Nifty Mid-Cap index fell 854 points during the week as alpha hunting took a backseat amidst the uncertainty of elections and the Union Budget. With large caps under pressure due to the banking sell-off, the impact also spilled over to the mid-caps this week. Unlike last week, when mid-caps held up, this week saw pressure sharpening on mid-caps. Clearly, the valuations are favouring the large caps and that is likely to keep mid-caps under pressure in the near future. However, mid-cap index is still very close to the lifetime highs and one must not forget that many of the mid-caps can be budget beneficiaries.

NIFTY SMALL-CAP 100 INDEX – ENDS ON A TEPID NOTE

The table captures movement of Nifty Small Cap 100 in the week to January 26, 2024.

Date	High	Low	Close
26-Jan-24	15,435.30	15,289.15	15,409.40
25-Jan-24	15,435.30	15,289.15	15,409.40
24-Jan-24	15,348.20	14,910.30	15,332.05
23-Jan-24	15,665.70	15,014.05	15,073.05
22-Jan-24	15,589.35	15,477.70	15,518.90
20-Jan-24	15,589.35	15,477.70	15,518.90
	Weekly Returns	-0.71%

Data Source: NSE

After consistent gains for 6 weeks and the small cap index gaining 14%, the index had fallen marginally by -0.17% in the previous week. In the latest week, the small cap index fell by another -0.71% as selling accelerated across the board. Small cap remains a good story, but has just taken a back seat this week as fresh allocations are targeting the larger plays due to relative valuations. One view is that the focus of mutual fund NFOs may shift to large caps, and that could hit small cap flows. SIP flows are robust and that can be helpful.

BANK NIFTY INDEX – MORE BANKS COME UNDER PRESSURE

The table below captures the movement of BANKNIFTY in the week to January 26, 2024.

Date	High	Low	Close
26-Jan-24	45,139.05	44,429.00	44,866.15
25-Jan-24	45,139.05	44,429.00	44,866.15
24-Jan-24	45,485.50	44,489.40	45,082.40
23-Jan-24	46,580.30	44,886.10	45,015.05
22-Jan-24	46,183.70	45,640.90	46,058.20
20-Jan-24	46,183.70	45,640.90	46,058.20
	Weekly Returns	-2.59%

Data Source: NSE

After losing -3.46% in the previous week, Bank Nifty lost another -2.59% this week taking cumulative losses to around 6.2% in two weeks. In the previous week, it was just HDFC Bank that was under stress but this week the stress spread to Axis Bank, Kotak Bank and even to ICICI Bank, despite good quarterly results. However, flat PCE inflation in the US and the better than expected GDP growth should help Bank Nifty next week. Markets remain cautious about banking stocks, especially private sector banks. One likely trend is a bigger shift of FPI money from the banking stocks into defensives like IT, FMCG and healthcare.

NIFTY IT INDEX – COOLS DOWN AFTER A SHARP RALLY

The table captures the movement of Nifty IT index in the week to January 26, 2024.

Date	High	Low	Close
26-Jan-24	36,938.60	36,354.10	36,496.20
25-Jan-24	36,938.60	36,354.10	36,496.20
24-Jan-24	37,174.20	36,435.30	37,090.15
23-Jan-24	37,383.45	36,424.90	36,521.35
22-Jan-24	37,310.65	36,643.70	36,697.50
20-Jan-24	37,310.65	36,643.70	36,697.50
	Weekly Returns	-0.55%

Data Source: NSE

The IT index had gained 5.5% in the previous two weeks, so a fall of -0.55% in the current week is not much of a surprise. The rally was on the back of better than expected results by IT companies, but that story is factored in. Of course, what is keeping investors interested in IT stocks is that the dollar could well strengthen from current levels. However, IT stocks have shown a sharp rally in the last 3 months, so some caution is warranted. In calendar year 2023, IT sector returns beat Nifty returns by more than 600 bps.

NIFTY OIL & GAS INDEX – OIL PRICE SPIKE HITS DOWNSTREAM OIL

The table captures the Nifty Oil & Gas index for the week to January 26, 2024.

Date	High	Low	Close
26-Jan-24	10,285.35	10,139.60	10,183.30
25-Jan-24	10,285.35	10,139.60	10,183.30
24-Jan-24	10,236.25	9,987.95	10,215.00
23-Jan-24	10,520.10	9,957.65	10,013.15
22-Jan-24	10,440.75	10,329.10	10,373.40
20-Jan-24	10,440.75	10,329.10	10,373.40
	Weekly Returns	-1.83%

Data Source: NSE

In the last 11 weeks, the Oil & Gas index has been the big star gaining over 35%. So, a correction of -1.83% in the current week was absolutely warranted. The ongoing Red Sea crisis, combined with the strong GDP data in the US, has spiked the price of Brent Crude to $83.55/bbl. With the oil prices likely to remain steady ahead of the general elections, the chances of negative margins for downstream oil companies goes up sharply. That has turned the sentiments for oil stocks and that was evident in the latest week.

NIFTY AUTO INDEX – RURAL DEMAND IS THE QUESTION MARK

The table captures the movement of Nifty Auto index in the week to January 26, 2024.

Date	High	Low	Close
26-Jan-24	18,709.10	18,434.45	18,614.90
25-Jan-24	18,709.10	18,434.45	18,614.90
24-Jan-24	18,632.15	18,143.75	18,593.70
23-Jan-24	18,763.00	18,314.15	18,361.00
22-Jan-24	18,786.75	18,592.15	18,651.10
20-Jan-24	18,786.75	18,592.15	18,651.10
	Weekly Returns	-0.19%

Data Source: NSE

Auto index closed the week with losses of -0.19%, but that is not a major worry considering that the auto sector was the top performing sector of 2023. However, auto stocks have bene star performers and this is more like a logical correction. The impact of weak rural demand is already evident on tractor stocks and two wheelers stocks are also feeling the pinch. There is only so much that the urban demand can compensate for.

NIFTY FMCG INDEX – ANOTHER WEEK OF LOSSES

The table captures the movement of Nifty FMCG index in the week to January 26, 2024.

Date	High	Low	Close
26-Jan-24	55,981.60	54,981.05	55,214.10
25-Jan-24	55,981.60	54,981.05	55,214.10
24-Jan-24	55,918.60	54,859.90	55,858.70
23-Jan-24	56,284.40	54,816.10	54,973.90
22-Jan-24	56,650.35	55,933.65	55,976.65
20-Jan-24	56,650.35	55,933.65	55,976.65
	Weekly Returns	-1.36%

Data Source: NSE

After four weeks of gains, the FMCG index has lost about 4.5% in the last 3 weeks. That is not much, but is indicative of the pressure that is building in terms of weak rural demand. The numbers indicate that urban demand is buoyant but struggling to fill the gap left by weak rural demand. Heavyweights like Hindustan Unilever and ITC are under pressure and that is also keeping the index under stress. However, defensive bets on the FMCG stocks are here to stay at higher levels of the Nifty. Also, the crude oil spike is likely to be cost-push for the FMCG stocks.