Weekly Musings – Index performance for week ended July 12, 2024

13 Jul 2024 , 08:25 AM

FOUR RISKS TO BE CAUTIOUS ABOUT IN CURRENT MARKETS

With the Sensex at well above 80,000, the biggest talk about town is about FOMO (fear of missing out. However, it is when things seem impeccable that the silent risks lurk in the background. Remember, India is still a great story, but an 8-10% correction at this juncture can could rattle a lot of investors. Here are 4 risk factors to be cautious about.

• Keep an eye on the regulatory risk. Quite often, the regulator in an attempt to control the front in the market, ends up triggering a correction. For instance, tight regulations on smaller stocks could trigger a payment crisis among small investors and brokers and lead to a sharp sell-off by the brokers to fund the unfunded margins of open positions.
• A lot still depends on retail sentiments. However, in the last few months, retail investors have been quite active in the futures and options. The problem with futures is that just as profits can get magnified, even losses can get magnified. A 10% correction, when you are trading with 20% margins, is effectively a loss of 50%. That can change sentiments.
• The global markets are still not entirely beyond political risk. The Middle East and West Asia are still festering and that has implications for oil prices. The Russia-Ukraine war is far from over and Russia continues outside the global mainstream. China, meanwhile, is indulging in persistent sabre rattling. Any of these could snowball into a major crisis.
• This risk of bad quarterly results is still not too visible. However, if the RBI keeps the markets too tight for longer and if the interest costs start to hit profits we could see the results worse in the next 1-2 quarters. That could lead to a sudden valuation downward rating of India and have its impact on the stock market levels overall.

The problem with market corrections is that they always come unannounced. As trades and investors, you need to be prepared for it. That is the best that you can do. Each of the risks above is a distinct possibility and as we have seen in the past, any of these factors can be a trigger for a market sell-off.

BSE SENSEX 30 INDEX – SPEEDS PAST THE 80,000 MARK

The table captures the movement of the BSE SENSEX 30 for the week to July 12, 2024.

Date	Open	High	Low	Close
12-Jul-24	80,093.62	80,893.51	79,843.39	80,519.34
11-Jul-24	80,170.09	80,170.09	79,464.38	79,897.34
10-Jul-24	80,481.36	80,481.36	79,435.76	79,924.77
09-Jul-24	80,107.21	80,397.17	79,998.56	80,351.64
08-Jul-24	79,915.00	80,067.46	79,731.83	79,960.38
05-Jul-24	79,778.98	80,149.87	79,478.96	79,996.60
		Weekly Returns		+0.65%

Data Source: BSE

The Sensex continues to show a lot of strength and has persistently closed above the 80,000 mark, which his is a sign of positive traction. The trigger for the Sensex this week came from IT, oil & gas and the FMCG space. For the week, the Sensex closed with subdued gains of 0.65%. During the week, the Sensex touched a high of 80,894 and a low of 79,436. The Sensex closed the week 523 points higher. For now, 81,000 looks to be the next major target and beyond that it is more like a no-man’s zone. A lot will predicate on the results, but the early triggers from the tech sector appear to be positive.

NIFTY 50 INDEX – IT, FMCG, OIL BOOST THE NIFTY

The table captures the movement of Nifty 50 index in the week to July 12, 2024.

Date	Open	High	Low	Close
12-Jul-24	24,387.95	24,592.20	24,331.15	24,502.15
11-Jul-24	24,396.55	24,402.65	24,193.75	24,315.95
10-Jul-24	24,459.85	24,461.05	24,141.80	24,324.45
09-Jul-24	24,351.00	24,443.60	24,331.90	24,433.20
08-Jul-24	24,329.45	24,344.60	24,240.55	24,320.55
05-Jul-24	24,213.35	24,363.00	24,168.85	24,323.85
		Weekly Returns		+0.73%

Data Source: NSE

For the fifth week in a row, the FPI flows at $855 Million were very supportive of the Nifty with total flows of $6.80 Billion coming into equities in 5 weeks. For the week, the Nifty closed with gains of 0.73% as the gains of IT sector, oil & gas and FMCG were partially neutralized by banks and automobiles. The VIX, which had tapered to 12.7 levels last week, saw a bounce to touch the 14 levels in the current week. However, the Nifty still remains buy-on-dips index. For the week, the Nifty gained a total of 178 points. During the week, the Nifty touched a high of 24,592 and a low of 24,241, eventually closing the week above the 24,500 mark. Nifty is already in unchartered territory, so higher resistances would be psychological in nature. Nifty may need support from banking sector to scale higher levels.

NIFTY NEXT 50 INDEX – PUTS UP A TEPID SHOW IN THE WEEK

The table captures the movement of Nifty Next 50 for the week to July 12, 2024.

Date	Open	High	Low	Close
12-Jul-24	74,322.40	74,453.30	73,424.40	73,732.10
11-Jul-24	74,155.45	74,308.55	73,787.05	74,059.20
10-Jul-24	74,148.70	74,158.90	72,254.00	73,897.50
09-Jul-24	73,823.90	74,096.00	73,446.50	73,863.60
08-Jul-24	73,693.75	73,812.20	73,232.35	73,508.80
05-Jul-24	72,984.85	73,483.80	72,785.65	73,426.55
		Weekly Returns		+0.42%

Data Source: NSE

In a week when the Nifty and the Sensex dominated the story of the markets, Nifty Next 50 put up a relatively tepid show. The index closed the week with gains of just 0.42%, relatively lower compared to the Nifty and the Sensex. This week, the Nifty Next 50 touched a high of 74,453 level and a low of 72,254, before closing the week at  73,732. For the week as a whole, the Nifty Next 50 index gained 306 points, largely because its mainstay sectors of defence and PSU stocks relatively underperformed in the week.

NIFTY MID-CAP 100 INDEX – MID-CAPS WERE OUT OF FASHION

The table captures the movement of Nifty Mid-Cap 100 in the week to July 12, 2024.

Date	Open	High	Low	Close
12-Jul-24	57,408.60	57,412.80	57,004.05	57,173.80
11-Jul-24	57,217.40	57,263.65	56,904.40	57,148.25
10-Jul-24	57,348.20	57,373.30	55,727.80	56,921.15
09-Jul-24	57,158.80	57,297.75	56,798.25	57,077.55
08-Jul-24	57,294.40	57,339.90	56,706.15	56,888.20
05-Jul-24	56,690.30	57,139.25	56,558.35	57,089.45
		Weekly Returns		+0.15%

Data Source: NSE

In the previous 3 weeks, the mid-cap index had closed with gains of 330 bps, but bounced by just 15 bps in the latest week to July 12, 2024. During the week, the advance / decline ratio turned decisively negative and that went against these mid-sized stocks. During the week, the Mid-Cap 100 index touched a high of 57,413 and a low of 55,728. The index is already near its lifetime highs so it gained just 84 points in the week.

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

The table captures movement of Nifty Small Cap 100 in the week to July 12, 2024.

Date	Open	High	Low	Close
12-Jul-24	19,009.50	19,069.50	18,902.20	18,949.05
11-Jul-24	18,892.45	18,936.35	18,790.15	18,919.65
10-Jul-24	19,044.80	19,063.45	18,414.70	18,789.75
09-Jul-24	19,037.50	19,095.55	18,867.40	18,956.75
08-Jul-24	19,036.65	19,107.45	18,844.95	18,908.40
05-Jul-24	18,822.40	18,993.60	18,795.00	18,941.20
		Weekly Returns		+0.04%

Data Source: NSE

The week showed the alpha take a backseat in the markets. The small cap index had gained about 3.90% in the last 2 weeks, so some normalization was expected. This week, the index of small caps closed  with gains of just 0.04%; you can say almost flat. For the week, the Nifty Small Cap index gained just 8 points. During the week, the index touched a high of 19,107 levels and a low of 18,415, but ended the week just below the 19,000 mark. It is a sign that retail investors are still a bit cautious about small caps at this stage.

BANK NIFTY INDEX – BANKS EASE ON INFLATION WORRIES

The table below captures the movement of BANKNIFTY in the week to July 12, 2024.

Date	Open	High	Low	Close
12-Jul-24	52,272.65	52,794.55	52,171.15	52,278.90
11-Jul-24	52,316.90	52,400.30	51,749.45	52,270.65
10-Jul-24	52,528.80	52,528.80	52,075.40	52,189.30
09-Jul-24	52,390.50	52,626.60	52,292.95	52,568.80
08-Jul-24	52,533.10	52,710.80	52,246.70	52,425.80
05-Jul-24	52,560.10	52,817.85	52,290.05	52,660.35
		Weekly Returns		-0.72%

Data Source: NSE

Bank Nifty fell by -381 points in the week to July 12, 2024. However, the Banking index had gained about 5.50% in the three weeks prior to that. The banking party was spoilt last week by tepid outlook by HDFC Bank and in the current week the party was spoilt by higher inflation expectations. On Friday, the actual inflation did come in higher at 5.08%. This raised concerns that the RBI may not be keen to cut interest rates at this point. During the week, the Bank Nifty touched a high of 52,795 and a low of 51,749.

NIFTY IT INDEX – WEAK RUPEE AND ROBUST TCS RESULTS BOOST IT SECTOR

The table captures the movement of Nifty IT index in the week to July 12, 2024.

Date	Open	High	Low	Close
12-Jul-24	37,917.35	39,237.70	37,825.25	39,023.00
11-Jul-24	37,464.85	37,636.20	37,108.35	37,332.60
10-Jul-24	37,713.95	37,824.65	37,110.35	37,280.75
09-Jul-24	37,747.30	37,827.80	37,603.85	37,668.65
08-Jul-24	37,766.00	37,949.80	37,582.70	37,742.25
05-Jul-24	37,754.15	37,884.65	37,491.40	37,720.75
		Weekly Returns		+3.45%

Data Source: NSE

After gaining 9% in the previous 3 weeks, the latest week saw the IT index surge another 3.45% on the back of a weak rupee. TCS results were better than street estimates on constant currency (CC) growth, OPMs, and manpower equations. The gains in IT stocks were supported by a strong dollar and a weak rupee; since the IT companies offer a natural hedge against rupee weakness. The Nifty IT index closed with weekly gains 1,302 points. For the week, Nifty IT index touched a high of 39,2.8 and a low of 37,108. IT has been the consistent star of the last 4 weeks.

NIFTY OIL & GAS INDEX – RELIANCE STORY ALL OVER AGAIN

The table captures the Nifty Oil & Gas index for the week to July 12, 2024.

Date	Open	High	Low	Close
12-Jul-24	12,852.15	12,916.20	12,720.40	12,855.50
11-Jul-24	12,693.55	12,858.50	12,593.15	12,779.75
10-Jul-24	12,695.25	12,704.70	12,343.90	12,640.90
09-Jul-24	12,712.25	12,720.90	12,572.60	12,634.80
08-Jul-24	12,571.90	12,693.20	12,509.20	12,656.85
05-Jul-24	12,322.80	12,576.20	12,296.15	12,547.00
		Weekly Returns		+2.46%

Data Source: NSE

After gaining 5.80% in the previous two weeks; the Nifty Oil & Gas index gained another 2.46% in the current week to take three-week gains to about 8.3%. The surge was largely led by re-rating in Reliance, which closed the week at a life-time high. The robust crude prices helped the upstream and refining stocks with a promise of better gross refining margins (GRMs). In addition, the upgrade by Jefferies on likely listing of Reliance Jio in 2025 also added to the valuation of Reliance Industries. The Oil & Gas index was up 309 points as aggressive buying was back in oil & gas stocks. The Oil & Gas index touched a high of 12,916 and a low of 12,344 levels in the week.

NIFTY AUTO INDEX – HIGHER INFLATION TRIGGERS CORRECTION

The table captures the movement of Nifty Auto index in the week to July 12, 2024.

Date	Open	High	Low	Close
12-Jul-24	25,246.40	25,301.40	25,102.40	25,145.45
11-Jul-24	25,381.10	25,431.15	25,228.90	25,257.25
10-Jul-24	25,904.45	25,906.10	25,094.10	25,302.80
09-Jul-24	25,389.70	25,845.75	25,338.35	25,823.55
08-Jul-24	25,480.55	25,581.95	25,230.80	25,260.50
05-Jul-24	25,377.75	25,428.75	25,226.45	25,398.30
		Weekly Returns		-1.00%

Data Source: NSE

After subdued gains in the last two weeks, it was clear the momentum was shifting away from Auto. This week, the auto index actually lost -1.00% as higher inflation expectations spooked the auto stocks. Most auto stocks like Tata Motors and M&M are also taking price cuts. While rural demand is likely to get a boost this time, input costs and the challenge to pass on costs remains the key issue. For the week, the Auto Index made a high of 25,906 and a low of 25,094; closing 253 points lower for the week.

NIFTY FMCG INDEX – RIDES HIGH ON EXPECTED RURAL REVIVAL

The table captures the movement of Nifty FMCG index in the week to July 12, 2024.

Date	Open	High	Low	Close
12-Jul-24	59,576.70	59,885.40	59,414.85	59,725.75
11-Jul-24	59,403.30	59,587.60	58,980.75	59,516.70
10-Jul-24	59,219.40	59,545.75	58,687.15	59,349.60
09-Jul-24	59,018.00	59,425.75	58,673.00	59,182.65
08-Jul-24	57,888.45	58,673.95	57,748.95	58,611.20
05-Jul-24	57,102.35	57,737.75	57,048.75	57,673.00
		Weekly Returns		+3.56%

Data Source: NSE

Last week, the FMCG index saw a surprising rally of 1.61% after CRISIL hinted at a sharp revival in rural demand this quarter. The revival could average in double digits, but the other big trigger was that branded FMCG had been under pressure for too long and a recovery. This week, the FMCG was the top performer among sectors with gains of a whopping 3.56%. During the week, the FMCG index touched a high of 59,885 and a low of 57,749 and gained 2,053 points during the week. FMCG was the star performing sector this week.

To sum up, if the latest week was about the large cap narrative outshining the smaller stocks. Alpha hunting has taken a back seat, but that should come back soon. With a surge in retail interest, mid-caps and small caps cannot really be off the radar for too long.