Weekly Musings – Index performance for week ended July 21, 2023

22 Jul 2023 , 08:00 PM

The week to July 21, 2023 saw a strong performance, as it almost sailed very closed to the 20,000 mark on the Nifty on Thursday. However, Friday saw a massive sell-off in which the Nifty corrected 234 point and the Sensex fell by 888 points in a single day. Despite such heavy selling on Friday, the overall markets still closed with gains for the week. The Nifty gained 0.92% during the week largely helped along by the Bank Nifty. 

The rally could have been much better had it not been for the sell-off on Friday. The markets have been driven up by relentless FPI flows and sustained scepticism. It is ironic, but it is scepticism that keeps markets moving higher on a consistent basis. The VIX is still very low so there are not real volatility concerns at this point of time. For now, the best thing to do is to appreciate the rally that has breached several resistances. (For live impact, check market map)

NIFTY 50 INDEX – CLOSES POSITIVE DEPSITE FRIDAY SELL-OFF

The table below captures the movement of the Nifty 50 index in the week to July 21, 2023.

Date	High	Low	Close
21-Jul-23	19,887.40	19,700.00	19,745.00
20-Jul-23	19,991.85	19,758.40	19,979.15
19-Jul-23	19,851.70	19,727.45	19,833.15
18-Jul-23	19,819.45	19,690.20	19,749.25
17-Jul-23	19,731.85	19,562.95	19,711.45
14-Jul-23	19,595.35	19,433.50	19,564.50
	Weekly Returns	+0.92%

Data Source: NSE

In the last few weeks, the Nifty has successfully breached through some very strong resistance levels. It first breached 18,400, then 18,800 and then it breached the less sticky resistance levels of 19,500 and 19,800. On Thursday, the Nifty had gotten tantalizing close to the 20,000 mark, but Friday sell-off appears to have spoilt the party. However, for now, the level of 20,000 on the NSE looks more like a question of when rather than whether. 

Last week, we had spoken about the sector rotation and that was amply evident in this week as Banks played a key role in boosting the Nifty. Good results were just one part of the story but the markets also expressed its enthusiasm that the HDFC Bank, HDFC Ltd merger would be value accretive in the long run. That led to renewed flows into the BFSI sector. The demerger of Jio Financial from Reliance Industries also served as a boost for the oil & gas sector overall. Perhaps, Friday did spoil the party to some extent

NIFTY NEXT 50 INDEX – DIPS INTO NEGATIVE FOR THE WEEK

The table captures the movement of Nifty Next 50 index in the week to July 21, 2023.

Date	High	Low	Close
21-Jul-23	44,401.15	44,139.80	44,184.75
20-Jul-23	44,506.15	44,166.45	44,350.80
19-Jul-23	44,444.90	44,242.20	44,414.40
18-Jul-23	44,507.10	44,053.15	44,180.60
17-Jul-23	44,437.90	44,258.40	44,370.15
14-Jul-23	44,286.65	43,890.40	44,243.05
	Weekly Returns	-0.13%

Data Source: NSE

In the last few weeks, the Nifty Next 50 has consistently underperformed the Nifty 50. That trend continued this week as the Nifty Next 50 actually gave marginally negative returns due to the sharp fall in this index on Friday. The Nifty Next 50 index remains highly exposed to financials, consumer goods and healthcare. The issue was not about its sectoral mix, but the focus was largely on the front lines stocks like HDFC Bank and Reliance, where most of the action was happening. The Nifty Next 50 index had consistently struggled to breach the 44,000 levels although it did break above that level towards the end of last week. This week, the index still remained in a very tight range in the absence of specific triggers.

NIFTY MID-CAP 100 INDEX – MID-CAPS SHOWED POCKETS OF INTEREST

The table captures the movement of Nifty Mid-Cap 100 in the week to July 21, 2023.

Date	High	Low	Close
21-Jul-23	36,886.20	36,752.05	36,799.50
20-Jul-23	36,966.00	36,863.60	36,931.70
19-Jul-23	36,860.20	36,623.20	36,839.00
18-Jul-23	36,747.30	36,409.85	36,591.40
17-Jul-23	36,766.50	36,589.35	36,641.25
14-Jul-23	36,549.55	36,192.70	36,528.95
	Weekly Returns	+0.74%

Data Source: NSE

It was another week of strong gains for the Nifty Mid-Cap 100 gaining 0.74%. What is of note is that the Nifty Mid-Cap 100 is already at a life-time high now. Mid cap stocks and other alpha stocks are moving to the background as the large caps are at the centre of all news flows and are getting all the attention. Mid-caps have been consistent performers in the market and after the sharp outperformance of mid-cap IT stocks last week, this week appears to be relatively more subdued. However, this segment has long term positive sector like range-bound oil prices and a steady rupee.

NIFTY SMALL-CAP 100 INDEX – CONTINUES ITS UPWARD JOURNEY

The table captures the movement of Nifty Small Cap 100 index in the week to July 21, 2023.

Date	High	Low	Close
21-Jul-23	11,542.65	11,415.60	11,529.70
20-Jul-23	11,475.05	11,406.65	11,447.15
19-Jul-23	11,419.30	11,351.90	11,404.95
18-Jul-23	11,483.10	11,262.70	11,317.20
17-Jul-23	11,464.20	11,387.05	11,424.10
14-Jul-23	11,333.45	11,213.35	11,323.90
	Weekly Returns	+1.82%

Data Source: NSE

The Small-Cap 100 index has been largely impervious to the overall market movements and that positive trend continued even in the latest week. In the last few weeks, the Nifty small cap index has shifted from struggling to breach 10,000 mark to settling well above 11,500 levels. They have been the real outperformers in the year to date period, beating all other indices in the race. Even as retail and HNI investors have been indulging in alpha hunting in small cap stocks, many of them are also being seriously looked at by mutual funds for their focused business models. In fact, the deluge of NFOs from multi-cap funds and flexi-cap funds is likely to keep this particular set of stocks enthused.

BANK NIFTY INDEX – TURNED OUT THE BIG STAR OF THE WEEK

The table below captures the movement of BANKNIFTY in the week to July 21, 2023.

Date	High	Low	Close
21-Jul-23	46,369.50	45,925.90	46,075.20
20-Jul-23	46,256.20	45,640.95	46,186.90
19-Jul-23	45,707.40	45,433.00	45,669.30
18-Jul-23	45,905.85	45,281.30	45,410.85
17-Jul-23	45,556.45	44,695.05	45,449.75
14-Jul-23	44,923.85	44,547.80	44,819.30
	Weekly Returns	2.80%

Data Source: NSE

Just in the previous week, the Bank Nifty was struggling to breach above the 45,000 resistance. In the current week, the Bank Nifty not only breached the 45,000 levels but also closed decisively above the 46,000 levels. That is a lot of intense activity in just a week. The results of banks continue to be positive but the big takeaway is the impact that the HFDC Bank merger with HDFC Ltd is likely to have on the banking landscape of India. After all, post the merger, the market cap of HDFC Bank at $177 billion makes it the most valuable bank in India by a margin and the fourth most valuable bank in the world. HDFC Bank is now more valuable than HSBC and Wells Fargo and that is creating a feel good factor for the Bank Nifty index performance.

NIFTY IT INDEX – TAKES A KNOCK ON WEAK GUIDANCE

The table captures the movement of Nifty IT index in the week to July 21, 2023.

Date	High	Low	Close
21-Jul-23	30,338.10	29,701.20	29,871.05
20-Jul-23	31,348.60	30,960.75	31,145.90
19-Jul-23	31,653.85	31,068.15	31,353.55
18-Jul-23	31,491.75	30,865.85	31,371.15
17-Jul-23	31,658.10	30,805.00	31,041.60
14-Jul-23	31,017.55	29,847.05	30,945.50
	Weekly Returns	-3.47%

Data Source: NSE

Just last week, the IT stocks staged an incredible rally ending as the top performer in the Nifty. That was despite tepid results from TCS, HCL Tech and Wipro. This week, the tables turned when Infosys also disappointed the street with its guidance. Its guidance for top line constant currency (CC) growth was lowered from the range of 4-7% to just about 1-3%. That has not gone down well with the markets and the likes of Infosys lost more than 10% in just 2 days. In addition, all other IT stocks also joined in the fall after the NASDAQ gains of the previous week started to peter out.

NIFTY OIL & GAS INDEX – RELIANCE DEMERGER WAS THE REAL STORY

The table captures the movement of Nifty Oil & Gas index in the week to July 21, 2023.

Date	High	Low	Close
21-Jul-23	8,096.10	8,037.50	8,062.15
20-Jul-23	8,117.65	8,050.15	8,103.00
19-Jul-23	8,065.40	7,987.35	8,050.70
18-Jul-23	8,048.25	7,978.65	7,998.20
17-Jul-23	8,014.40	7,930.85	7,984.65
14-Jul-23	7,957.40	7,870.05	7,933.50
	Weekly Returns	+1.62%

Data Source: NSE

The oil sector put up a stellar performance, gaining 1.62% in the week. The upstream players are likely to gain from crude prices crossing above the $80/bbl mark. That is also likely to help refining companies boost their GRMs and their inventory valuations, although marketing companies may face pressure. But the real big story of the week was the demerger of the financial services business of RIL into Jio Financial Services. However, if one looks at the latest results of Reliance for Q1FY24, it is the oil-to-chemicals (O2C) business of Reliance Industries that has witnessed the highest level of pressure.

NIFTY AUTO INDEX – ABSOLUTELY FLAT AFTER A LONG RALLY

The table captures the movement of Nifty Auto index in the week to July 21, 2023.

Date	High	Low	Close
21-Jul-23	15,645.30	15,509.55	15,590.35
20-Jul-23	15,589.90	15,434.40	15,577.00
19-Jul-23	15,559.30	15,454.85	15,513.15
18-Jul-23	15,595.75	15,443.05	15,513.80
17-Jul-23	15,643.80	15,477.70	15,526.80
14-Jul-23	15,605.90	15,513.30	15,576.10
	Weekly Returns	+0.09%

Data Source: NSE

Autos have been one of the big stories in the market and that continues, although the momentum of the rally has been tapering for the last few weeks. The auto index rallied in 7 out of the previous 8 weeks and in the latest week it has given moderate returns of 0.09%. Auto numbers show a huge backlog of orders and demand far in excess of supply, but the growth is likely to be captured in this quarter by the two-wheelers and not the PV and CV players. 

Two wheelers are also likely to see good traction on the demand front due to green shoots of revival in rural demand. However, the higher food inflation due to delayed and erratic monsoons means that the rural demand may be hit this year, although urban demand is likely to more than compensate for the same. It is more a case of a lot of the enthusiasm and optimism already being built into the price of the auto stocks. 

NIFTY FMCG INDEX – Q1FY24 COULD BE THE LITMUS TEST

The table captures the movement of Nifty FMCG index in the week to July 21, 2023.

Date	High	Low	Close
21-Jul-23	54,349.85	53,511.00	53,697.45
20-Jul-23	54,289.95	53,309.80	54,239.70
19-Jul-23	53,607.25	53,078.55	53,517.30
18-Jul-23	53,633.20	53,245.90	53,340.65
17-Jul-23	53,799.65	53,351.60	53,471.60
14-Jul-23	53,558.95	53,094.45	53,453.70
	Weekly Returns	+0.46%

Data Source: NSE

The FMCG index is trading at a 52-week high with most of its major components like Colgate, Tata Consumer, Dabur, Nestle India, Marico, Hindustan Unilever, and Britannia trading close to their 52-week highs. In the latest week, the sectoral index was up 0.46%. A combination of revival in consumer demand, promise of rural purchases and product positioning have given a fresh lease of life to the FMCG stocks. The rally has been despite rather stiff valuations of the FMCG stocks in general.

Here are the major takeaways from the week ended July 21, 2023. 

• Even as overall Nifty breaks higher, alpha picking continues to be the name of the game. The good news is that heavyweight banking is now leading the rally. FPI buying has been concentrated in financials, capital goods, FMCG and automobiles, the low hanging fruits

   

• The sharp fall in US inflation to 3% should act as a force multiplier. However, the real icing on the cake would be if the US Fed decides that the 25 bps rate hike in July will mark the end of rate hikes in this round.

The Nifty is in uncharted territory and 20,000 levels looks more like a case of when rather than whether. The low VIX continues to remain a major positive factor for the Indian markets as it still signals a buy-on-dips strategy in this market.