Weekly Musings – Index performance for week ended March 15, 2024

18 Mar 2024 , 07:40 AM

UNWINDING AND SMALL CAP PARANOIA MARKED THE WEEK

The week ended March 15, 2024 closed with nearly 2% losses on the Nifty and the Sensex. Ironically this happened despite FPI flows at a robust $3.48 Billion in the current week and at $5.55 Billion in the last 4 weeks. What explains the sharp dichotomy wherein the market has corrected so sharply despite strong FPI flows?

• There was a good deal of paranoia in select sectors. For instance, oil & gas stocks fell sharply as did auto stocks. The heavyweight banking was down almost as much as the Nifty and the Sensex. However, IT managed to give robust returns in the week. Why did indices falter. It was largely about trader unwinding. There have been concerns over valuation for some time and this week these concerns just deepened. The unwinding was most evident in auto, the top performer of 2023 and oil & gas, which rallied more than 50% in the last quarter of 2023.
• The other big trigger that dragged market sentiments lower was the clampdown on small and mid-cap stock speculation. First SEBI issued warnings to fund managers of small and mid-cap funds to go easy on flows. Then additional special margins were imposed and in select cases SEBI prescribed even 100% upfront margins. The result was a sharp fall in speculative volumes as traders ran for cover. That also had its spillover impact on the larger stocks due to forced unwinding in many cases.

It remains to be seen if the paranoia in smaller stocks sustains in the coming week as that could be the key deciding factor for market direction.

WHAT SHOULD MARKETS READ INTO NEXT WEEK?

The coming week will several key data points to watch out for. Here are 3 data points that will be closely watched by the markets.

• The US Fed policy will be announced on March 20, 2024. While rate cuts are now almost ruled out till June, the global markets will be closely watching this space for any signals or timelines for the rate cuts in 2024.
• Oil prices will be on the radar of the markets in the coming week. Last week, oil had touched a 5-month high of $85.50/bbl and the demand/supply situation promises to be relatively tight. That could also create challenges for the Indian rupee.
• It remains to be seen if the small cap and mid-cap paranoia stays on in the coming week. It is unlikely to go away in a short span, but if the regulators and market voices give encouraging statements, the paranoia can surely be avoided in the markets.

Apart from these factors, the markets will also keep an eye on the Red Sea crisis and the central bank policy triggers from the UK, EU and Japan, especially in the light of UK and Japan slipping into technical recession.

BSE SENSEX 30 INDEX – GIVES UP 2% IN THE WEEK

The table captures the movement of the BSE SENSEX 30 for the week to March 15, 2024.

Date	High	Low	Close
15-03-2024	72,998.07	72,484.82	72,643.43
14-03-2024	73,364.30	72,497.19	73,097.28
13-03-2024	74,052.75	72,515.71	72,761.89
12-03-2024	74,004.16	73,342.12	73,667.96
11-03-2024	74,187.35	73,433.91	73,502.64
07-03-2024	74,245.17	73,921.48	74,119.39
	Weekly Returns		-1.99%

Data Source: BSE (base is Thursday as Friday was holiday)

Sensex closed the week -1.99% lower , despite overall positive macro triggers and strong FPI flows. For the week, the Sensex touched a high of 74,052, but closed decisively lower at 72,643 levels. The Sensex did show a bounce on two days but could not sustain the momentum. Overall, Sensex lost 1,476 points this week, which is a break of the rally of the last 4 weeks. The sell-off in the week was more on the small and mid-cap stocks but traders also took the opportunity to offload where there was froth in markets.

NIFTY 50 INDEX – FALLS SHARPLY DESPITE ROBUST FPI INFLOWS

The table captures the movement of Nifty 50 index in the week to March 15, 2024.

Date	High	Low	Close
15-Mar-24	22,120.90	21,931.70	22,023.35
14-Mar-24	22,204.60	21,917.50	22,146.65
13-Mar-24	22,446.75	21,905.65	21,997.70
12-Mar-24	22,452.55	22,256.00	22,335.70
11-Mar-24	22,526.60	22,307.25	22,332.65
07-Mar-24	22,525.65	22,430.00	22,493.55
	Weekly Returns		-2.09%

Data Source: NSE (base Thursday as Friday was holiday)

Nifty closed with losses of 470 points, representing a sharp fall from the life time high for the Nifty FPIs infused $3,488 Million in the week, and $5,555 Million in the last 4 weeks, but Nifty fell sharply despite such encouraging flows. In terms of sectoral performance, oil & gas, autos were the worst hit while banking also fell at par with the Nifty and Sensex. However, IT sector was a surprise gainer in the week. Even as the FPIs are back in action and the VIX has tapered to under 13.7 levels; the sharp fall in the Nifty was led by unwinding in tandem with the sharp sell-off in mid-cap and small-cap stocks after froth warnings.

NIFTY NEXT 50 INDEX – FEELS THE PINCH OF MARKET OVERHANG

The table captures the movement of Nifty Next 50 for the week to March 15, 2024.

Date	High	Low	Close
15-Mar-24	58,661.10	57,184.20	58,058.80
14-Mar-24	58,639.85	56,430.85	58,520.20
13-Mar-24	59,661.80	56,716.85	57,149.55
12-Mar-24	60,418.80	59,294.60	59,377.20
11-Mar-24	60,920.25	60,203.75	60,311.15
07-Mar-24	60,573.10	59,929.10	60,323.90
	Weekly Returns		-3.75%

Data Source: NSE (base Thursday as Friday was holiday)

The Nifty Next 50 generally mirrors the Nifty but this week, it did a lot worse than the Nifty with -3.75% losses. 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 above 60,920 levels but closed sharply lower at 58,059. The Next 50 index lost 2,265points, after being persistent gainers in the last 4 weeks. There was a broad-based sell-off in second tier stocks where there were valuation concerns; and this index had many such cases.

NIFTY MID-CAP 100 INDEX – COMES UNDER TRADER SHELLING

The table captures the movement of Nifty Mid-Cap 100 in the week to March 15, 2024.

Date	High	Low	Close
15-Mar-24	47,145.30	46,062.05	46,685.60
14-Mar-24	46,979.75	45,293.35	46,901.20
13-Mar-24	48,278.00	45,656.85	45,971.40
12-Mar-24	48,891.20	47,862.40	48,086.85
11-Mar-24	49,201.20	48,697.35	48,774.65
07-Mar-24	49,182.05	48,868.60	48,966.15
	Weekly Returns		-4.66%

Data Source: NSE (base Thursday as Friday was holiday)

The Nifty Mid-Cap index lost 2,281 points or -4.66% in the week marking one of the sharpest sell-offs in the index. Apart from front concerns, there was also a lot of tax-farming related selling by HNIs in India as they prefer to book losses and reduce the tax this year. This is a common practice among the traders and the mid-cap stocks are most vulnerable. SEBI warnings on this front also took its toll on this index.

NIFTY SMALL-CAP 100 INDEX – SEES A MASSIVE SELL-OFF

The table captures movement of Nifty Small Cap 100 in the week to March 15, 2024.

Date	High	Low	Close
15-Mar-24	14,927.40	14,566.85	14,846.70
14-Mar-24	14,803.10	14,085.35	14,788.55
13-Mar-24	15,176.80	14,213.55	14,295.05
12-Mar-24	15,421.00	15,010.55	15,092.10
11-Mar-24	15,783.60	15,368.35	15,396.90
07-Mar-24	15,746.20	15,607.30	15,709.00
	Weekly Returns		-5.49%

Data Source: NSE (base Thursday as Friday was holiday)

This was the sixth consecutive negative week for the Small Cap 100 index and this week saw intense selling. It closed the week with -5.49% losses and has now lost over 10% in the last 4 weeks. While retail investors continued to be interested in small caps, there is some caution at higher levels; especially with the large caps looking better valued. In addition, other factors like the reduced flows into small cap funds, the additional special margins and 100% upfront margins on several small stocks took its toll on this index.

BANK NIFTY INDEX – FACTORING IN DELAYED RATE CUTS

The table below captures the movement of BANKNIFTY in the week to March 15, 2024.

Date	High	Low	Close
15-Mar-24	46,802.55	46,310.50	46,594.10
14-Mar-24	47,231.50	46,565.55	46,789.95
13-Mar-24	47,468.70	46,842.15	46,981.30
12-Mar-24	47,812.75	46,884.45	47,282.40
11-Mar-24	47,853.80	47,230.65	47,327.85
07-Mar-24	48,071.70	47,747.20	47,835.80
	Weekly Returns		-2.60%

Data Source: NSE (base Thursday as Friday was holiday)

Just about 3 weeks ago, the Bank Nifty had seen a sharp sell-off after Goldman Sachs cut the price targets for most private sector banks. Goldman Sachs had then raised concerns that the NII growth and NIMs may have peaked. However, the Bank Nity bounced in the last two weeks. After the RBI clamped down on a number of large NBFCs, there was a shift back to bank. However, this week, the sell-off in banks was triggered by the view that the RBI may not look to cut rates till the full budget was presented in July 2024.

NIFTY IT INDEX – SURPRISE GAINER FOR THE WEEK

The table captures the movement of Nifty IT index in the week to March 15, 2024.

Date	High	Low	Close
15-Mar-24	37,592.05	37,264.90	37,500.70
14-Mar-24	37,723.35	36,607.65	37,679.60
13-Mar-24	37,556.60	36,689.10	36,946.45
12-Mar-24	37,568.95	36,981.70	37,224.25
11-Mar-24	37,203.85	36,820.35	36,988.30
07-Mar-24	37,318.95	36,838.35	37,099.90
	Weekly Returns		+1.08%

Data Source: NSE (base Thursday as Friday was holiday)

In the latest week to March 15, 2024, the Nifty IT index was the surprise gainer at +1.08%. In the previous 3 weeks, the IT index had lost more than 5%. Indian IT companies got a leg up after the last quarter results, but that enthusiasm had waned after guidance showed that constant currency growth in revenue would be under stress. This week, the interest in IT stocks is on the back of hopes that they should serve as a defensive addition to the portfolio, especially at a time when domestic markets were so very volatile.

NIFTY OIL & GAS INDEX – TAKES A SHARP HIT IN THE WEEK

The table captures the Nifty Oil & Gas index for the week to March 15, 2024.

Date	High	Low	Close
15-Mar-24	11,269.50	10,770.15	11,058.80
14-Mar-24	11,310.20	10,956.80	11,281.85
13-Mar-24	11,619.45	10,973.65	11,025.40
12-Mar-24	11,731.15	11,565.05	11,589.30
11-Mar-24	11,827.55	11,623.85	11,643.55
07-Mar-24	11,941.65	11,742.95	11,768.25
	Weekly Returns		-6.03%

Data Source: NSE (base Thursday as Friday was holiday)

Oil & gas index lost 603 bps this week, but one must not forget that thee stocks had rallied in the last 5 months. Also, there have been concerns that the oil prices in the Brent market could be volatile, especially with the Brent already above $85/bbl. In addition, the decision by the OMCs to cut prices of petrol and diesel by ₹2/litre risks narrowing of marketing margins for the OMCs. That was one of the key reasons for the oil index to fall so sharply, with the correction persistent through the week. The Red Sea crisis remains a major overhang for the oil & gas space in India.

NIFTY AUTO INDEX – SEES HEAVY UNWINDING IN THE WEEK

The table captures the movement of Nifty Auto index in the week to March 15, 2024.

Date	High	Low	Close
15-Mar-24	20,523.35	20,066.80	20,192.30
14-Mar-24	20,569.25	20,169.85	20,514.25
13-Mar-24	20,988.55	20,211.20	20,338.25
12-Mar-24	21,077.05	20,853.85	20,931.85
11-Mar-24	21,219.85	20,962.00	21,001.15
07-Mar-24	21,247.55	21,004.50	21,126.80
	Weekly Returns		-4.42%

Data Source: NSE (base Thursday as Friday was holiday)

After gaining 22% in the last 8 weeks, the Auto index fell sharply by -4.42% in the lates week as traders rushed to unwind profitable positions in two wheelers and in four wheelers. The auto sector had been making big bets on lower inflation and lower rates making cars and two-wheelers cheaper. However, that looks unlikely to happen before July this year and that has disappointed auto stocks.

NIFTY FMCG INDEX – REMAINS A PRESSURE POINT

The table captures the movement of Nifty FMCG index in the week to March 15, 2024.

Date	High	Low	Close
15-Mar-24	54,464.95	53,886.70	54,155.45
14-Mar-24	54,252.45	53,280.20	54,145.80
13-Mar-24	54,962.50	53,470.25	53,664.15
12-Mar-24	53,950.25	53,382.35	53,636.10
11-Mar-24	54,628.60	53,970.25	54,087.45
07-Mar-24	54,461.05	53,637.10	54,406.30
	Weekly Returns		-0.46%

Data Source: NSE (base Thursday as Friday was holiday)

The FMCG sector has been oscillating between positive and negative in the last few weeks. However, in the latest week, the Nifty closed with losses of 46 bps. While rural demand continues to be an overhang for the auto sector, there are also fears that delayed rate cuts may hit consumption. Also, higher oil prices are likely to hit most of the FMCG stocks in terms of input costs. FMCG stays a defensive but volatile play.