Weekly Musings – Index performance for week ended May 10, 2024

14 May 2024 , 08:47 AM

IT WAS A WEEK, ENTIRELY ABOUT RISK

The difference between risk and return is that you can control risk, but you cannot control returns. However, in the current week, traders and investors struggled to come to terms with market risks. Here are 5 risk stories we read for the week ended May 10, 2024.

• The big indication of risk was the spike in the VIX or the volatility index. In a span of less than 12 days, the VIX has spiked from 10 levels to around 20 levels. The VIX captures the volatility implied in option prices and a rising VIX is a signal that investors are becoming more cautious and hence they are hedging their risks aggressively.
• The geopolitical risk is still there in the market. If anything, the situation in the Middle East and West Asia has only gotten worse. It has even urged the US to criticize Israel for its tactics, but it looks like Israel wants to go the whole hog. That is not great news for oil prices, but we need to wait and watch.
• The third risk that markets were up against is the valuation risk. Markets like China and Hong Kong are starting to look salivating in comparison to India. That also explains why there have been some big outflows from India. Whether these flows continue or whether there is mean reversion remains to be seen.
• The fourth big risk that markets are up against is the monetary policy risk. The US Fed has been very cagey about its future strategy, but recent speeches by Neil Kashkari have not been too friendly. He has gone to the extent of hinting at rate hikes, if inflation continued to persist. Monetary policy divergence poses a big risk to Indian markets.
• But, the biggest risk of them all is the political risk. The indications coming from the market (there is nothing official about it) is that the victory margin for the NDA could be thinner than expected. Markest fear that it may push the government more towards populist measures that unnecessarily burden the exchequer. That is a risk.

Amidst this rising tide of risks, there is a positive takeaway for investors. Quite often, VIX acts as a contrarian indicator. A spike in demand for hedging, may be the opposite i.e., institutions and proprietary desks willing to write put options. After all, every buyer needs a seller too and in options, it is the better informed trading desks that are on the sell side.

WHAT SHOULD EQUITY MARKETS TRACK NEXT WEEK?

The coming week has 3 data points to be tracked closely by markets.

• The India inflation data is expected to be announced this week and the CPI inflation is expected to be announced this week. After a lower than expected inflation at 4.85% last month, it is likely to be flat for this month. The markets will be worried about a spike.
• The US also announces its CPI inflation this week and that is expected to sober by 20 bps. That should take some wind away from the sails of the hawks in the Fed. However, even after the fall, US inflation would be 160 points away from the target.
• The markets will also be looking forwards to the India VIX, which has become the most important factor deciding the direction of the market. the market would be fervently hoping for a tapering of the VIX at the earliest.

With results season over, the focus would be on other factors like US bond yields, crude oil prices and the US dollar index.

BSE SENSEX 30 INDEX – CLOSES BELOW 73,000 FOR THE WEEK

The table captures the movement of the BSE SENSEX 30 for the week to May 10, 2024.

Date	Open	High	Low	Close
10-May-24	72,475.45	72,946.54	72,366.29	72,664.47
09-May-24	73,499.49	73,499.49	72,334.18	72,404.17
08-May-24	73,225.00	73,684.93	73,073.92	73,466.39
07-May-24	73,973.30	74,026.80	73,259.26	73,511.85
06-May-24	74,196.68	74,359.69	73,786.29	73,895.54
03-May-24	75,017.82	75,095.18	73,467.73	73,878.15
		Weekly Returns		-1.64%

Data Source: BSE

In the previous week, the Sensex had tried and closed above the 75,000 mark. However, all those gains were dissipated in this week as it closed well below the 73,000 mark and the close was very near to the low point of the week. Technically, 72,000 continues to be a major support for the Sensex and only a fall below that will open up sharper downside risks for the Sensitive Index. The close near to the lows is a weak signal for Sensex.

NIFTY 50 INDEX – RISING VIX PLAYS THE SPOILSPORT

The table captures the movement of Nifty 50 index in the week to May 10, 2024.

Date	Low	High	Low	Close
10-May-24	21,990.95	22,131.30	21,950.30	22,055.20
09-May-24	22,224.80	22,307.75	21,932.40	21,957.50
08-May-24	22,231.20	22,368.65	22,185.20	22,302.50
07-May-24	22,489.75	22,499.05	22,232.05	22,302.50
06-May-24	22,561.60	22,588.80	22,409.45	22,442.70
03-May-24	22,766.35	22,794.70	22,348.05	22,475.85
		Weekly Returns		-1.87%

Data Source: NSE

During the week, the spike in FPI outflows and the rising VIX spoilt the story for Nifty. Nifty below 22,000 in the last 2 days of the week, but managed to just close higher at 22,055 for the week. During the week, the Nifty lost -421 points as FPIs were net sellers of $2,184 Million in the week. The buying support from the domestic mutual funds, LIC did not help much as the VIX spiked close to the 20 mark. However, the fall in Nifty could have been much harder, had it not been for the support provided by the auto sector and the fast moving consumer goods (FMCG) sector.

NIFTY NEXT 50 INDEX – TAKES DEEP CUTS IN THE WEEK

The table captures the movement of Nifty Next 50 for the week to May 10, 2024.

Date	Low	High	Low	Close
10-May-24	63,788.25	64,056.80	63,019.00	63,934.20
09-May-24	64,983.00	65,063.80	63,284.25	63,411.10
08-May-24	63,908.05	65,076.00	63,562.90	64,784.25
07-May-24	65,179.65	65,332.10	63,550.25	63,937.35
06-May-24	65,829.50	65,865.40	64,398.10	64,937.40
03-May-24	66,450.35	66,456.25	65,190.75	65,770.50
		Weekly Returns		-2.79%

Data Source: NSE

The Nifty Next 50 like most of the smaller indices, took it on the chin. The Nifty Next 50 is the residual list after Nifty 50 stocks are removed from Nifty 100. In a market where Nifty is more about Beta and smaller stocks are about risky alpha; the Nifty Next-50 offers the middle path. This week, the index lost -2.79% after gaining an impressive 6.3% in the last 2 weeks. During the week, Nifty Next-50 touched a high of 65,865 levels but closed at 63,934, as the sharp spike in the VIX limited the gains in the week. The Next 50 lost -1,836 points during the week.

NIFTY MID-CAP 100 INDEX – HIT BY THE FALLING A/D RATIO

The table captures the movement of Nifty Mid-Cap 100 in the week to May 10, 2024.

Date	Low	High	Low	Close
10-May-24	49,252.35	49,585.55	48,605.40	49,532.30
09-May-24	50,109.75	50,155.50	49,016.40	49,109.15
08-May-24	49,588.80	50,169.85	49,265.60	50,036.30
07-May-24	50,775.95	50,788.70	49,363.75	49,674.45
06-May-24	51,258.15	51,265.80	50,342.30	50,662.20
03-May-24	51,284.00	51,342.65	50,655.15	50,935.15
		Weekly Returns		-2.75%

Data Source: NSE

The most obvious signal of a sell-off in the mid-cap index was available in the steadily worsening A/D ratio of the market as a whole. In a week when smaller stocks took a hit, the mid-cap index was down -2.75%, or 1,303 points. During the week, the Mid-Cap 100 index touched a high of 51,343 and a low of 48,605. After breaking above the 50,000 levels after a fairly long struggle, the index closed once again below that psychological mark.

NIFTY SMALL-CAP 100 INDEX – SMALL STOCKS HIT THE HARDEST

The table captures movement of Nifty Small Cap 100 in the week to May 10, 2024.

Date	Low	High	Low	Close
10-May-24	16,046.00	16,125.10	15,782.60	16,106.75
09-May-24	16,487.75	16,524.05	15,960.75	15,995.70
08-May-24	16,331.40	16,558.70	16,228.95	16,461.05
07-May-24	16,719.90	16,727.35	16,254.40	16,367.05
06-May-24	17,057.65	17,063.75	16,619.40	16,683.15
03-May-24	17,128.80	17,135.15	16,817.40	16,936.50
		Weekly Returns		-4.90%

Data Source: NSE

Last week, the Small Cap index gave marginally negative returns, but lost 4.9% in the current week as there was a virtual sell-off in the smaller stocks. The spike in the VIX to above 19 levels hit the smaller stocks the hardest, as they were the most vulnerable to higher risk. For the week, the Nifty Small Cap index lost a total of 830 points or -4.90%. During the week, the index touched a high of 17,135 levels and a low of 15,783; eventually closing the week near to the lows of the week.

BANK NIFTY INDEX – KEY SECTORAL LOSER FOR THE WEEK

The table below captures the movement of BANKNIFTY in the week to May 10, 2024.

Date	Low	High	Low	Close
10-May-24	47,555.50	47,868.70	47,313.35	47,421.10
09-May-24	47,976.35	48,258.65	47,440.65	47,487.90
08-May-24	48,124.20	48,223.05	47,851.15	48,021.10
07-May-24	48,965.05	49,023.50	48,213.75	48,285.35
06-May-24	49,174.55	49,252.65	48,784.00	48,895.30
03-May-24	49,375.05	49,607.75	48,659.70	48,923.55
		Weekly Returns		-3.07%

Data Source: NSE

Bank Nifty lost a total of 1,502 points or -3.07% for the week. During the week, the Bank Nifty touched a high of 49,608 and a low of 47,313, closing near to the lows. With its 34% weight in the Nifty, the Bank Nifty had an oversized impact on the Nifty index.

NIFTY IT INDEX – REMAINS STABLE IN A TOUGH WEEK

The table captures the movement of Nifty IT index in the week to May 10, 2024.

Date	Low	High	Low	Close
10-May-24	33,166.10	33,178.40	32,786.55	32,935.15
09-May-24	33,275.75	33,454.75	33,006.95	33,205.85
08-May-24	33,425.15	33,489.65	33,237.10	33,335.15
07-May-24	33,268.15	33,525.50	32,998.20	33,473.00
06-May-24	33,041.20	33,435.35	32,990.80	33,217.10
03-May-24	33,248.50	33,305.00	32,690.50	32,908.40
		Weekly Returns		+0.08%

Data Source: NSE

In the last 3 weeks, the Nifty IT index had fallen by -7.1% and this week it was surprisingly flat with just 8 bps of gains. Despite the broad risks to the IT index, the strength in the dollar worked in their favour. IT heavyweights managed to hold on to modest gains in the week, which led to the IT index gaining marginally. For the week, the Nifty IT index touched a high of 33,526 and a low of 32,691; relatively less volatile in the week.

NIFTY OIL & GAS INDEX – BRENT PRICES HITS OILCOS

The table captures the Nifty Oil & Gas index for the week to May 10, 2024.

Date	Low	High	Low	Close
10-May-24	11,309.70	11,379.45	11,181.25	11,348.70
09-May-24	11,585.20	11,606.65	11,180.35	11,212.35
08-May-24	11,396.75	11,669.50	11,373.85	11,577.05
07-May-24	11,661.40	11,677.20	11,352.80	11,383.10
06-May-24	11,866.40	11,874.40	11,544.60	11,601.20
03-May-24	11,993.85	12,035.00	11,698.30	11,807.65
		Weekly Returns		-3.89%

Data Source: NSE

Reliance Industries led the Oil & Gas index lower by -459 points or -3.89% during the week. For the week, the Oil & Gas index touched a high of 12,035 and a low of 11.180 levels. The sharp fall in Brent Crude prices also worked against the fortunes of oil companies.

NIFTY AUTO INDEX – STANDS OUT AS THE CONSISTENT STAR

The table captures the movement of Nifty Auto index in the week to May 10, 2024.

Date	Low	High	Low	Close
10-May-24	22,725.35	22,898.30	22,672.30	22,846.90
09-May-24	22,501.90	22,994.55	22,492.60	22,633.30
08-May-24	22,102.95	22,512.55	21,959.30	22,458.65
07-May-24	22,582.35	22,595.90	21,996.65	22,114.00
06-May-24	22,622.60	22,654.90	22,394.35	22,526.60
03-May-24	22,870.55	22,870.55	22,342.60	22,541.35
		Weekly Returns		+1.36%

Data Source: NSE

Few sectoral indices have been as consistent as the Nifty Auto Index. After gaining 12% in the last 7 weeks, the Nifty Auto index added another 1.36% or 306 points during the week. For the week, the Auto Index made a high of 22,995 and a low of 21,997; closing near to the high point of the week. Apart from good numbers, and solid auto demand, the fall in input costs also helped the auto stocks.

NIFTY FMCG INDEX – A SURPRISING WINNER OF THE WEEK

The table captures the movement of Nifty FMCG index in the week to May 10, 2024.

Date	Low	High	Low	Close
10-May-24	54,739.25	55,407.10	54,601.75	55,276.50
09-May-24	55,924.60	56,020.35	54,533.45	54,625.10
08-May-24	55,704.30	56,124.30	55,569.70	56,008.80
07-May-24	54,942.60	56,222.75	54,855.80	55,765.55
06-May-24	54,544.15	54,697.70	54,149.50	54,660.15
03-May-24	54,688.85	54,702.55	53,913.30	54,273.90
		Weekly Returns		+1.85%

Data Source: NSE

It is not often that you get to see FMCG as the star of the week gaining 1.85% or 1,003 points. For the week, the index touched a high of 56,223 and a low of 53,913. The surge in the FMCG index came from a surprise surge in rural sales and hopes of a normal monsoon this year. One hast to wait and watch for now!