Weekly Musings – Index performance for week ended May 24, 2024

27 May 2024 , 12:35 PM

ARE THE MARKETS DEFYING LOGIC?

On the face of it, the markets appear to be defying logic. There is political uncertainty, there is geopolitical strife, inflation continues to be high, corporate profits have been under pressure and the VIX stands at 21.7. Despite all these headwinds, the Nifty touched the 23,000 mark in the previous week, while the Sensex decisively closed above the 75,000 mark. It is hard to explain such a rally, but this rally is not just in India. Even the US markets are experiencing a rally, despite all the headwinds pertaining to oil prices inflation, and steep valuations of stocks. What explains this dichotomy; wherein the markets are scaling new highs despite the plethora of headwinds in the market?

Scratch the surface, and there appears to be a method in the madness. Firstly, there appears to be a rush to cover shorts ahead of election outcome, which explains the sharp spikes despite high VIX levels. Secondly, there is broad bet on lower rates, even through the timing of the rate cuts may still be uncertain. As Powell rightly said, the only way rates can move now is downwards. Last, but not the least, the markets are betting that the combination of AI, ML and the rise of new technologies will take manufacturing and service productivity to new levels. These may be longer term bets, but they surely explain why the markets appear to be defying gravity, even when the headwinds are so strong.

RBI DIVIDEND BONANZA COULD BE A GAME CHANGER

The big news that could really make a difference to the Indian markets in the short to medium term is the record dividend paid out by the RBI to the government of India. Here is why it matters.

• The RBI dividend announcement at ₹2.11 Trillion is not only the highest ever, it is more than double the estimate presented by the government in the interim budget. In the interim budget, the government had projected inflows of ₹1.02 Trillion from RBI dividend and PSU bank dividend combined. That is a big revenue leap.
• The additional revenue gives the government substantial leeway while announcing the full budget in July 2024. The government can either opt for a further reduction in fiscal deficit for FY25 from 5.1% to below 5.0%. Alternatively, they can choose to boost the spike in capex for FY25 from the current 11% to 20%. Both are value accretive.
• Thirdly, and most important, the implications of the surge in revenues will mean less pressure on bond raising by the government. That keeps bond yields in check. In addition, the lower bond yields also reduce the cost of capital and give a boost to equity valuations. That is a perfect preparation when the RBI actually embarks on rate cuts.

The RBI bumper dividend is, perhaps, the more immediate reason for the sharp bounce in the markets this week. It remains to be seen if the positive lag effect sustains.

BSE SENSEX 30 INDEX – WELL ABOVE THE 75,000 MARK

The table captures the movement of the BSE SENSEX 30 for the week to May 24, 2024.

Date	Open	High	Low	Close
May 24, 2024	75,335.45	75,636.50	75,244.22	75,410.39
May 23, 2024	74,253.53	75,499.91	74,158.35	75,418.04
May 22, 2024	74,165.52	74,307.79	73,860.33	74,221.06
May 21, 2024	73,842.96	74,189.19	73,762.37	73,953.31
May 18, 2024	73,921.46	74,162.76	73,920.63	74,005.94
May 17, 2024	73,711.31	74,070.84	73,459.80	73,917.03
		Weekly Returns		+2.02%

Data Source: BSE

The Sensex has struggled at the 75,000 mark for the last few weeks, and finally, the Sensex gave a close above 75,000. Apparently, the RBI dividend and hopes of rate cuts buoyed the markets. The Sensex gained a full 2.02% in the week; making the gains 4% in two weeks. During the week, the Sensex touched a high of 75,637 and a low of 73,460. The Sensex closed the week 1,493 points higher. While part of the rally was led by short covering, the RBI dividend news did propel the banking stocks in the week.

NIFTY 50 INDEX – RALLIES SHARPLY DESPITE VIX AT 21.7

The table captures the movement of Nifty 50 index in the week to May 24, 2024.

Date	Open	High	Low	Close
May 24, 2024	22,930.75	23,026.40	22,908.00	22,957.10
May 23, 2024	22,614.10	22,993.60	22,577.45	22,967.65
May 22, 2024	22,576.60	22,629.50	22,483.15	22,597.80
May 21, 2024	22,404.55	22,591.10	22,404.55	22,529.05
May 18, 2024	22,512.85	22,520.25	22,470.05	22,502.00
May 17, 2024	22,415.25	22,502.15	22,345.65	22,466.10
		Weekly Returns		+2.19%

Data Source: NSE

During the week, FPI inflows into equities were to the tune of $744 Million. In the 5 weeks prior to that, FPIs had sold Indian equities to the tune of $6 Billion. Through the week, the VIX stayed above 20, closing at 21.7. for the week, the Nifty gained 2.19%, on top of 2.03% gains last week. Nifty added a total of 491 points in the week. During the week, the Nifty touched a high of 23,026 and a low of 22,346, eventually closing the week above the 22,500 levels. All sectors were in the green; with a big thrust from banks, autos, and oil & gas.

NIFTY NEXT 50 INDEX – CLOSES ON THE THRESHOLD OF 70,000

The table captures the movement of Nifty Next 50 for the week to May 24, 2024.

Date	Open	High	Low	Close
May 24, 2024	68,949.10	69,458.95	68,671.50	69,033.25
May 23, 2024	68,546.00	68,858.00	68,226.55	68,819.80
May 22, 2024	68,573.70	68,611.35	67,662.05	68,328.25
May 21, 2024	68,054.05	68,324.25	67,706.90	68,241.75
May 18, 2024	67,450.60	67,724.40	67,371.05	67,657.00
May 17, 2024	66,564.05	67,181.25	66,475.70	67,105.05
		Weekly Returns		+2.87%

Data Source: NSE

The Nifty Next 50 outperformed the major indices, although the margin was thinner this time around. The Nifty Next 50 is the residual list after Nifty 50 stocks are removed from Nifty 100. If Nifty is about Beta and smaller stocks are about risky alpha; the Nifty Next-50 offers a palatable median of the two. This week, the index gained 2.87% after rising an impressive 5.82% in the previous week. During the week, Nifty Next-50 touched a high of 69,459 level and a low of 66,476, before closing the week at  69,033. The index showed the best strength among generic indices. The Next 50 gained 1,928 points during the week.

NIFTY MID-CAP 100 INDEX – MID CAPS REPORT SUBDUED GAINS

The table captures the movement of Nifty Mid-Cap 100 in the week to May 24, 2024.

Date	Open	High	Low	Close
May 24, 2024	52,464.55	52,731.30	52,324.40	52,424.45
May 23, 2024	52,395.85	52,452.65	52,052.50	52,418.55
May 22, 2024	52,284.05	52,372.30	51,680.10	52,167.50
May 21, 2024	51,904.10	52,109.15	51,579.10	52,068.30
May 18, 2024	51,832.20	51,916.45	51,775.70	51,869.25
May 17, 2024	51,306.80	51,629.45	51,209.20	51,604.90
		Weekly Returns		+1.59%

Data Source: NSE

In the last couple of weeks, there have been positive signals for mid-caps, with the sharp turnaround in the overall market advance/decline ratio (A/D ratio). However, after gaining 4.72% in the previous week, the gains were more subdued this week at +1.59%. During the week, the Mid-Cap 100 index touched a high of 52,731 and a low of 51,209. After breaking above the 50,000 levels, the Nifty Mid-Cap index is at a life-time high.

NIFTY SMALL-CAP 100 INDEX – SMALL CAPS CLOSE FLAT

The table captures movement of Nifty Small Cap 100 in the week to May 24, 2024.

Date	Open	High	Low	Close
May 24, 2024	16,933.70	17,035.20	16,865.05	16,883.00
May 23, 2024	16,938.85	16,979.25	16,863.15	16,911.90
May 22, 2024	17,010.15	17,025.40	16,730.90	16,880.50
May 21, 2024	17,036.00	17,040.55	16,850.80	16,939.85
May 18, 2024	16,945.95	17,042.65	16,941.25	17,009.60
May 17, 2024	16,687.95	16,886.55	16,682.15	16,870.80
		Weekly Returns		+0.07%

Data Source: NSE

After gaining 5.16% in the previous week, the small cap index was flat, closing just 0.07% higher this week. The spike in the VIX to above 21 levels has made investors cautious on mid-caps. For the week, the Nifty Small Cap index gained just 12 points. During the week, the index touched a high of 17,043 levels and a low of 16,682.

BANK NIFTY INDEX – BIG GAINS FROM RBI BUMPER DIVIDENDS

The table below captures the movement of BANKNIFTY in the week to May 24, 2024.

Date	Open	High	Low	Close
May 24, 2024	48,668.00	49,052.95	48,644.80	48,971.65
May 23, 2024	47,899.35	48,829.70	47,873.15	48,768.60
May 22, 2024	48,113.90	48,114.05	47,435.25	47,781.95
May 21, 2024	47,927.10	48,259.75	47,927.10	48,048.20
May 18, 2024	48,197.30	48,222.35	48,108.15	48,199.50
May 17, 2024	47,842.95	48,188.65	47,758.80	48,115.65
		Weekly Returns		+1.78%

Data Source: NSE

Bank Nifty gained a total of 856 points this week, gaining 1.78%, on top of 1.64% gains in the previous week. Bank Nifty rallied in the last 3 days of the week, after the RBI announced a bumper dividend of ₹2.11 Trillion to the government. This is likely to subdue fiscal deficit and interest rates, which helped banking stocks. During the week, the Bank Nifty touched a high of 49,053 and a low of 46,435.

NIFTY IT INDEX – REMAINS A MODEST DOLLAR DEFENSIVE

The table captures the movement of Nifty IT index in the week to May 24, 2024.

Date	Open	High	Low	Close
May 24, 2024	34,024.65	34,088.20	33,761.70	33,824.30
May 23, 2024	33,683.70	34,098.05	33,615.35	34,042.85
May 22, 2024	33,444.25	33,724.35	33,364.15	33,613.10
May 21, 2024	33,253.00	33,453.60	33,191.75	33,379.75
May 18, 2024	33,446.25	33,494.45	33,394.00	33,438.75
May 17, 2024	33,763.85	33,766.70	33,361.00	33,381.85
		Weekly Returns		+1.33%

Data Source: NSE

After falling -7.2% in four weeks, the IT index gained 1.53% in the previous week and 1.33% in the current week. The IT index is surely emerging as a dollar defensive. For the week, the Nifty IT index touched a high of 34,098 and a low of 33,192; offering an alternate hedge to protect against the strength in the US dollar.

NIFTY OIL & GAS INDEX – ONCE AGAIN, THE STAR OF THE WEEK

The table captures the Nifty Oil & Gas index for the week to May 24, 2024.

Date	Open	High	Low	Close
May 24, 2024	11,931.65	12,062.30	11,885.15	11,992.15
May 23, 2024	11,821.10	11,949.20	11,809.75	11,930.80
May 22, 2024	11,845.50	11,857.00	11,690.95	11,789.70
May 21, 2024	11,704.25	11,825.80	11,682.55	11,767.75
May 18, 2024	11,699.00	11,699.00	11,699.00	11,699.00
May 17, 2024	11,551.85	11,657.80	11,521.50	11,644.40
		Weekly Returns		+2.99%

Data Source: NSE

Reliance Industries and BPCL led the Oil & Gas index higher by 348 points after or 2.99%, after similar robust gains last week. For the week, the Oil & Gas index touched a high of 12,062 and a low of 11,522 levels. The subdued Brent prices after taking support at $80/bbl has been positive for Indian oil and gas stocks; in oil production and refining.

NIFTY AUTO INDEX – THE POSITIVE SHOW CONTINUES

The table captures the movement of Nifty Auto index in the week to May 24, 2024.

Date	Open	High	Low	Close
May 24, 2024	23,774.15	24,038.60	23,692.15	23,891.45
May 23, 2024	23,368.55	23,874.75	23,252.20	23,849.25
May 22, 2024	23,380.90	23,400.25	23,201.95	23,324.10
May 21, 2024	23,322.95	23,422.05	23,215.45	23,353.75
May 18, 2024	23,389.65	23,400.05	23,305.35	23,339.30
May 17, 2024	23,045.65	23,386.95	23,039.40	23,285.65
		Weekly Returns		+2.60%

Data Source: NSE

The one thing you just cannot beat in this market is the Auto index. After gaining 17% in the last 8 weeks, Nifty Auto index added another 2.60% or 606 points during the week. For the week, the Auto Index made a high of 24,039 and a low of 23,039; closing near to the high point of the week. Strong volumes, favourable input pricing and a revival in rural sales have helped the auto story.

NIFTY FMCG INDEX – RECOUPS RECENT LOSSES

The table captures the movement of Nifty FMCG index in the week to May 24, 2024.

Date	Open	High	Low	Close
May 24, 2024	55,847.25	55,894.55	55,369.55	55,449.15
May 23, 2024	55,925.30	56,062.00	55,400.60	55,899.00
May 22, 2024	55,154.90	55,898.45	55,067.80	55,753.90
May 21, 2024	54,998.65	55,139.55	54,764.55	54,969.25
May 18, 2024	55,212.10	55,278.50	55,114.05	55,217.85
May 17, 2024	55,094.95	55,136.60	54,735.45	55,064.70
		Weekly Returns		+0.70%

Data Source: NSE

After a brief correction of 11 bps in the previous week, the FMCG index was back to its winning ways, gaining over 70 bps for the week. During the week, auto index touched a high of 56,062 and a low of 54,735. The recent updates on rural demand revival appears to be a major tailwind for the FMCG stocks.