Weekly Musings – Index performance for week ended February 23, 2024

26 Jul 2024 , 04:27 PM

WHAT EXPLAINS NEW HIGHS AMIDST UNCERTAINTY?

In the last few weeks, Indian markets showed remarkable resilience, despite the headwinds; both domestic and global. The Red Sea crisis has been going from bad to worse, Japan & UK have officially dipped into recession and global demand continues to be tepid. To top it up, the US Fed is still not too  explicit about when it wants to start cutting benchmark rates and that is causing a lot of uncertainty in global markets. In the midst of this; Nifty and Sensex, showed a lot of resilience in the latest week to touch new highs. The answer cannot be as elementary as the GDP story or long term growth. There is a more granular story at play.

Here is what is leading the Nifty and Sensex to new highs. Firstly, there is the valuation story. It is not like the Nifty and Sensex are cheap in P/E terms. They are valued higher than historical averages. However, they have been rarely available at such reasonable P/E ratios when the corporate sector is at the cusp of big growth. Secondly, there are serious bets emerging that the RBI will start cutting rates in the second half, once the new government is in place and the full budget has been presented. That can unleash a lot of hidden value and also boost capital spending by private sector. Lastly, there is the scepticism in the market, which prevents the market players from going overboard. As long as this scepticism exists, it prevents the markets from getting overheated at any point of time.

CRITICAL DATA POINTS FOR MARKETS TO WATCH OUT FOR

The coming week will be very important for the Indian markets in terms of data flows. In fact, there are 5 data points that will be closely watched.

1. The first big data point will be the GDP announcement for the third quarter on the last day of February. It is likely to surprise positively by coming in closer to 7.5%. That is likely to be a growth re-rating for India.
2. Secondly, the core sector data will also be announced this week. The government, in its interim budget had hiked the capital spending by 11.1% at ₹11.2 Trillion, accounting for 3.2% of GDP. That should reflect in robust core sector numbers.
3. The fiscal deficit update as of the close of January 2024 will also be closely tracked this week. After all, the government has aggressively cut fiscal deficit for FY24 to 5.8% and the target for FY25 to 5.1%. This update will be a reality check.
4. The US economy also announces the second estimate of Q4 GDP this week. The full year GDP growth of the US economy is slated to be above 2.1%, and the latest updated will be crucial to taking a final call on the US GDP number.
5. Finally, there is also the US PCE inflation data coming out this week. Consumer inflation was higher than expected and if PCE is also higher, then it may give the Fed reasons to h old on to current rates for longer.

Apart from these factors, the markets will also keep an eye on the growth triggers coming from the UK and Japan, which have betrayed the first signs of slipping officially into recession. After all, they jointly account for close to $9 Trillion in world GDP.

BSE SENSEX 30 INDEX – SCALES 73,414 DURING THE WEEK

The table captures the movement of the BSE SENSEX 30 for the week to February 23, 2024.

Date	High	Low	Close
23-Feb-24	73,413.93	73,022.00	73,142.80
22-Feb-24	73,256.39	72,081.36	73,158.24
21-Feb-24	73,267.80	72,450.56	72,623.09
20-Feb-24	73,130.69	72,510.24	73,057.40
19-Feb-24	72,881.93	72,308.68	72,708.16
16-Feb-24	72,545.33	72,218.10	72,426.64
	Weekly Returns	+0.99%

Data Source: NSE

Sensex closed the week +0.99% higher, following positive cues from the RBI MPC minutes. For the week, the Sensex touched a high of 73,414, and decisively closed above 73,000 levels. Overall, Sensex gained 716 points this week, which is a continuation of last week’s rally. The geopolitical situation remains fluid, but Sensex took solace from the fact that the trajectory of GDP growth appears to be moving higher, while that of inflation and fiscal deficit is moving lower. It is this Goldilocks moment that Sensex appears to be celebrating.

NIFTY 50 INDEX – CLOSES THE WEEK AT LIFETIME HIGHS

The table captures the movement of Nifty 50 index in the week to February 23, 2024.

Date	High	Low	Close
23-Feb-24	22,297.50	22,186.10	22,212.70
22-Feb-24	22,252.50	21,875.25	22,217.45
21-Feb-24	22,249.40	21,997.95	22,055.05
20-Feb-24	22,215.60	22,045.85	22,196.95
19-Feb-24	22,186.65	22,021.05	22,122.25
16-Feb-24	22,068.65	21,968.95	22,040.70
	Weekly Returns	+0.78%

Data Source: NSE

Nifty closed with gains of 172 points, representing the highest lifetime close for the index. FPIs infused $404 Million in the week, after being net sellers in 7 out of previous 8 weeks. In terms of sectoral performance, FMCG was the surprise factor leading Nifty higher while banking and automobiles also helped. IT sector and oil & gas applied pressure on Nifty. Even as the FPIs are back in action, the good news is that the VIX has also tapered to under 15 levels. However, elevated VIX is likely to continue till the general elections are completed.

NIFTY NEXT 50 INDEX – SEES SOME CAUTION IN PSU STOCKS

The table captures the movement of Nifty Next 50 for the week to February 23, 2024.

Date	High	Low	Close
23-Feb-24	59,331.45	58,811.95	59,153.75
22-Feb-24	59,080.40	58,006.90	58,999.00
21-Feb-24	59,104.80	58,204.25	58,386.50
20-Feb-24	58,767.20	58,428.25	58,706.40
19-Feb-24	58,897.75	58,548.40	58,650.30
16-Feb-24	58,694.90	58,393.60	58,586.15
	Weekly Returns	+0.97%

Data Source: NSE

The Nifty Next 50 generally mirrors the Nifty and this week, it was almost at par with the Nifty with 0.97% gains in a rather narrow market. 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 the 57,331 levels and is at its lifetime high. The Next 50 index gained 568 points, after gaining 1,153 points; 1,493 points and 1,649 points in the previous 3 weeks. Railway and defence stocks continued to rally with PSUs seeing some caution.

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

The table captures the movement of Nifty Mid-Cap 100 in the week to February 23, 2024.

Date	High	Low	Close
23-Feb-24	49,506.25	49,164.05	49,279.55
22-Feb-24	49,189.30	48,195.50	49,128.35
21-Feb-24	49,464.90	48,499.55	48,630.50
20-Feb-24	49,451.70	49,078.40	49,248.45
19-Feb-24	49,524.85	49,263.90	49,310.95
16-Feb-24	49,210.10	48,897.65	49,131.95
	Weekly Returns	+0.30%

Data Source: NSE

The Nifty Mid-Cap index gained 148 points or 0.30% as alpha hunting took a back seating. As oil and the USDINR have turned very volatile in recent weeks, the investors are getting wary about mid-cap stocks. They prefer the safety of large caps at this juncture. This could be an opportunity for the mid-caps to get into attractive value zone since the earnings growth of mid-caps continues to be very robust.

NIFTY SMALL-CAP 100 INDEX – NEGATIVE RETURNS PERSIST

The table captures movement of Nifty Small Cap 100 in the week to February 23, 2024.

Date	High	Low	Close
23-Feb-24	16,226.35	16,139.70	16,175.20
22-Feb-24	16,127.00	15,836.50	16,114.45
21-Feb-24	16,268.60	15,968.15	16,004.85
20-Feb-24	16,348.40	16,144.20	16,172.35
19-Feb-24	16,331.45	16,231.55	16,258.30
16-Feb-24	16,263.15	16,164.50	16,194.00
	Weekly Returns	-0.12%

Data Source: NSE

This is the third consecutive tepid week for the Small Cap 100 index. It closed with -0.12% returns this week, after falling -0.46% in the previous week and closing flat in the week before that. The last week of January had seen bumper returns of 5.64% before interest in the small caps tapered. However, retail investors are still making fresh allocations, as are mutual funds. Much of this money is likely to find its way into small cap stocks.

BANK NIFTY INDEX – GOLDMAN SACHS DOWNGRADES BANKS

The table below captures the movement of BANKNIFTY in the week to February 23, 2024.

Date	High	Low	Close
23-Feb-24	47,245.35	46,723.15	46,811.75
22-Feb-24	47,024.05	46,426.85	46,919.80
21-Feb-24	47,363.40	46,886.95	47,019.70
20-Feb-24	47,136.75	46,367.80	47,094.20
19-Feb-24	46,717.40	46,317.70	46,535.50
16-Feb-24	46,693.40	46,264.40	46,384.85
	Weekly Returns	+0.92%

Data Source: NSE

The bounce in the Bank Nifty in the latest week was a continuation of the previous week. Last week, the Bank Nifty had gained from the sharply lower inflation data, while this week the gains came from the RBI policy minutes indicating that rate cuts could be a reality in the second half of 2024. However, with the latest downgrade of banks by Goldman Sachs, the pressure on private banks is likely to continue, wherein the private banks are expected to see a fall in net interest income and narrowing of net interest margins (NIMs) in the coming quarters. High valuations continue to be a challenge for the banks.

NIFTY IT INDEX – COMES UNDER PRESSURE

The table captures the movement of Nifty IT index in the week to February 23, 2024.

Date	High	Low	Close
23-Feb-24	38,490.45	37,980.10	38,045.65
22-Feb-24	38,192.10	37,395.35	38,130.15
21-Feb-24	38,001.45	37,302.60	37,405.90
20-Feb-24	38,347.90	37,780.20	38,029.70
19-Feb-24	38,559.85	38,042.65	38,363.15
16-Feb-24	38,516.55	38,131.85	38,477.05
	Weekly Returns	-1.12%

Data Source: NSE

In the last 6 weeks, the Nifty IT index has gained 11% and this week it fell by -1.12% as global IT stocks, including the NASDAQ came under pressure in the week. Or course, Indian IT companies have propped up their digital share and despite tech spending falling sharply, the impact on Indian IT stocks has been minimal. Dividend yield is another robust story.

NIFTY OIL & GAS INDEX – RALLY FINALLY TAKES A BREAK

The table captures the Nifty Oil & Gas index for the week to February 23, 2024.

Date	High	Low	Close
23-Feb-24	11,847.45	11,707.50	11,756.30
22-Feb-24	11,825.85	11,584.30	11,806.75
21-Feb-24	12,009.80	11,708.35	11,771.95
20-Feb-24	11,982.20	11,788.00	11,943.35
19-Feb-24	11,995.65	11,849.25	11,919.70
16-Feb-24	12,074.30	11,824.90	11,854.10
	Weekly Returns	-0.83%

Data Source: NSE

The oil & gas index had 70% in 2023, with most of the returns in the last quarter. That had continued into 2024 also. However, this week saw negative returns as oil majors like Reliance, BPCL and ONGC sold off. Oil situation remains uncertain amidst the Red Sea crisis and investors are just playing it safe after the very sharp rally in recent weeks. Oil & gas companies have valuations and attractive dividend yields in their favour.

NIFTY AUTO INDEX – RATE CUT BETS GAIN MOMENTUM

The table captures the movement of Nifty Auto index in the week to February 23, 2024.

Date	High	Low	Close
23-Feb-24	20,711.00	20,540.75	20,621.35
22-Feb-24	20,621.95	20,181.00	20,584.85
21-Feb-24	20,494.10	20,192.45	20,252.55
20-Feb-24	20,480.40	20,239.50	20,354.25
19-Feb-24	20,548.80	20,380.90	20,481.60
16-Feb-24	20,515.05	20,074.10	20,423.45
	Weekly Returns	+0.97%

Data Source: NSE

After gaining 16% in the last 5 weeks, the Auto index added another 0.97% in the latest week. The big bets are on automobile affordability is the growth in demand and the shift to EVs at a more aggressive pace. With inflation coming down rapidly and growth still robust, the markets are of the view that rate cuts could be bigger and more intense in H2-2024. The rates cuts are likely to be driven by high real rates of interest and to bring rates back to pre-COIVD levels. Auto demand is likely to remain undersupplied in the near future.

NIFTY FMCG INDEX – INTEREST RETURNS TO DEFENSIVE STORY

The table captures the movement of Nifty FMCG index in the week to February 23, 2024.

Date	High	Low	Close
23-Feb-24	54,561.55	54,268.75	54,337.75
22-Feb-24	54,479.80	53,581.80	54,419.20
21-Feb-24	54,226.85	53,651.25	53,892.35
20-Feb-24	54,027.15	53,552.55	53,882.50
19-Feb-24	54,121.60	53,576.00	53,943.30
16-Feb-24	53,643.90	53,186.70	53,518.60
	Weekly Returns	+1.53%

Data Source: NSE

The FMCG index was the star of the week, gaining 1.53% for the week. This comes after 5 weeks, when FMCG index lost -8.3%. The pressure of weak rural demand was still evident in the Q3FY24 results and urban demand struggling to offset the weak rural demand. Most FMCG players saw a rebound this week as defensive buying picked up steam. FMCG is the only heavyweight sector giving negative returns in 2024, some restoration of normalcy was on the cards.