Weekly Musings – Index performance for week ended March 01, 2024

4 Mar 2024 , 06:58 AM

WHY ARE STOCK MARKETS IGNORING GLOBAL UNCERTAINTY?

Before we get into the nuances of the specific markets and indices this month, there is a more fundamental question to address. Why is it that Indian markets are touching new highs, even as global uncertainty continues to peak. There can be 3 explanations for that. Firstly, the Indian markets is still a predominantly a domestically driven market. World trade and tech spending do make a difference, but in terms of their weightage on the GDP, they are not as pronounced as the Southeast Asian countries. 

Secondly, valuations in India, even at new highs, is still lower than the past peaks. At about 22-23X rolling quarter P/E ratio, markets are far from being overstretched. Lastly, over the years, the Indian tax system has been gradually shifting to favour equities over debt and other asset classes and that is translating into a deluge of individual money into Indian equities.

WATCH FOR THE LARGE CAP / MID CAP DIVERGENCE

Over the last 3 months, we have seen the mid-cap index and the small cap index outperforming the Nifty and the Sensex on a consistent basis. After all, these were the stocks that had the potential to generate alpha and evolve into large caps in the future. However, something appears to have changed in last couple of week. For starters, there was also the risk of mid-caps and small caps being too richly valued compared to the large caps. That is now correcting and that premium is getting into mean reversion mode. 

Secondly, as markets trade at life-time highs and election uncertainty is looming, there is an automatic shift towards the large caps, which have historically proven to be the more resilient plays on the Indian markets. Lastly, there is also something to do with the SEBI regulatory thrust. In the previous week, the regulatory called upon the mutual fund AMCs to regulate the flows into small cap and mid-cap funds since SEBI is worried about valuations and also about the scarcity of liquid small and mid-cap stocks in India. That trend is likely to continue.

WHAT SHOULD THE MARKETS BE READING INTO NEXT WEEK?

The coming week will be relatively subdued for the Indian markets in terms of data flows, as it is likely to be a truncated week with just 4 days of trading. In fact, there are 3 data points that will be closely watched.

1. The first big data point will be the domestic PMI services data that will give a picture of the momentum in the services sector. Both PMI manufacturing and PMI services have stayed at elevated levels and well above the 60 levels in recent months.

    

2. There is also the upcoming testimony by Fed chair, Jerome Powell, in front of the Senate Banking Committee. Powell will be testifying on the half yearly monetary policy, the progress in containing inflation and the future trajectory of rate cuts as committed.

    

3. One important factor that will impact the stock markets in the coming week is the lag effect of a slew of positive data last week. GDP was higher than expected, fiscal deficit is lower than expected and core sector is steady. The impact was felt in terms of FPI flows on Friday, but being big data points, impact is likely to manifest in the coming week too.

Apart from these factors, the markets will also keep an eye on the growth triggers coming from the UK and Japan, which have officially slipped into recession. Oil prices have been on the boil, and that will also be in focus.

BSE SENSEX 30 INDEX – SCALES 73,819 DURING THE WEEK

The table captures the movement of the BSE SENSEX 30 for the week to March 01, 2024.

Date	High	Low	Close
01-Mar-24	73,819.21	72,591.14	73,745.35
29-Feb-24	72,730.00	72,099.32	72,500.30
28-Feb-24	73,223.11	72,222.29	72,304.88
27-Feb-24	73,161.30	72,660.13	73,095.22
26-Feb-24	73,092.26	72,666.82	72,790.13
23-Feb-24	73,413.93	73,022.00	73,142.80
	Weekly Returns	+0.82%

Data Source: NSE

Sensex closed the week +0.82% higher, following positive cues from the Q3 GDP data. For the week, the Sensex touched a high of 73,819, and decisively closed above 73,700 levels. Overall, Sensex gained 603 points this week, which is a continuation of the rally of the last 2 weeks. The geopolitical situation remains fluid, but Sensex took solace from the fact that the trajectory of GDP growth appears to be much better than expected and the fiscal deficit update is almost on the sure path to a restrained performance. Interestingly, the Sensex was in the negative after 4 days, and the entire rally came on Friday, after the GDP data.

NIFTY 50 INDEX – IMPRESSED BY GDP AND FPI FLOWS

The table captures the movement of Nifty 50 index in the week to March 01, 2024.

Date	High	Low	Close
01-Mar-24	22,353.30	22,047.75	22,338.75
29-Feb-24	22,060.55	21,860.65	21,982.80
28-Feb-24	22,229.15	21,915.85	21,951.15
27-Feb-24	22,218.25	22,085.65	22,198.35
26-Feb-24	22,202.15	22,075.15	22,122.05
23-Feb-24	22,297.50	22,186.10	22,212.70
	Weekly Returns	+0.57%

Data Source: NSE

Nifty closed with gains of 126 points, representing the highest lifetime close for the index. FPIs infused $743 Million in the week, after being net sellers in 6 out of previous 8 weeks. In terms of sectoral performance, banking and autos stole the show, while IT, oil and FMCG indices stayed under pressure. Even as the FPIs are back in action, the good news is that the VIX has also tapered to under 15 levels. However, the big news driving the Nifty during the previous was the better than expected GDP number for Q3 and also the FY24 estimates.

NIFTY NEXT 50 INDEX – BACK TO MIRRORING THE NIFTY

The table captures the movement of Nifty Next 50 for the week to March 01, 2024.

Date	High	Low	Close
01-Mar-24	59,578.20	59,213.70	59,506.75
29-Feb-24	59,256.30	57,803.70	58,991.35
28-Feb-24	59,370.00	58,218.10	58,387.30
27-Feb-24	59,633.60	58,885.05	59,150.65
26-Feb-24	59,375.05	58,998.25	59,198.55
23-Feb-24	59,331.45	58,811.95	59,153.75
	Weekly Returns	+0.60%

Data Source: NSE

The Nifty Next 50 generally mirrors the Nifty and this week, it was almost at par with the Nifty with 0.60% gains. 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 57,634 levels and is at its lifetime high. The Next 50 index gained 353 points, after gaining 568 points, 1,153 points, and 1,493 points in the previous 3 weeks. Most of the rally this week came from economically significant sectors, after the GDP rally.

NIFTY MID-CAP 100 INDEX – PRESSURE STARTS TO SHOW

The table captures the movement of Nifty Mid-Cap 100 in the week to March 01, 2024.

Date	High	Low	Close
01-Mar-24	48,830.50	48,517.45	48,790.60
29-Feb-24	48,470.80	47,548.80	48,335.70
28-Feb-24	49,184.60	47,972.10	48,089.10
27-Feb-24	49,351.80	48,860.95	49,041.20
26-Feb-24	49,404.40	48,845.70	49,102.30
23-Feb-24	49,506.25	49,164.05	49,279.55
	Weekly Returns	-0.99%

Data Source: NSE

The Nifty Mid-Cap index lost 489 points or -0.99% as alpha hunting took a back seat. However, it was not just about alpha, as the investors also showed a distinct preference for the safety and solidity of large caps in a volatile market. In addition, the SEBI diktat to mutual fund AMCs to go slow on mid-cap fund flows also had its impact on the index.

NIFTY SMALL-CAP 100 INDEX – DOWN 4 WEEKS IN A ROW

The table captures movement of Nifty Small Cap 100 in the week to March 01, 2024.

Date	High	Low	Close
01-Mar-24	16,133.70	16,025.70	16,058.95
29-Feb-24	16,028.20	15,642.30	15,976.20
28-Feb-24	16,260.00	15,795.80	15,875.15
27-Feb-24	16,240.35	16,130.05	16,177.70
26-Feb-24	16,256.20	16,117.80	16,133.15
23-Feb-24	16,226.35	16,139.70	16,175.20
	Weekly Returns	-0.72%

Data Source: NSE

This is the fourth consecutive negative week for the Small Cap 100 index. It closed the week with -0.72% returns after losing -0.12%, -0.46% and -0.31% in the weeks prior to the current week. While retail investors continued to be interested in small caps, there is some caution at higher levels. Also, the SEBI cautionary note to mutual fund AMCs to go slow on small cap funds has dampened the spirits of the investors in small cap stocks.

BANK NIFTY INDEX – BANKS PUT GOLDMAN DOWNGRADE BEHIND

The table below captures the movement of BANKNIFTY in the week to March 01, 2024.

Date	High	Low	Close
01-Mar-24	47,342.25	46,218.00	47,286.90
29-Feb-24	46,329.65	45,661.75	46,120.90
28-Feb-24	46,754.55	45,852.55	45,963.15
27-Feb-24	46,722.25	46,324.90	46,588.05
26-Feb-24	46,893.15	46,513.55	46,576.50
23-Feb-24	47,245.35	46,723.15	46,811.75
	Weekly Returns	+1.02%

Data Source: NSE

The Bank Nifty has been on a positive trend, despite the downgrade coming from Goldman Sachs of large private sector banks. It is true that NII growth and NIMs may have peaked. However, investors still see value in banks as the best proxy for the Indian GDP growth and also the ever expanding consumer base in India. Banking remained the big performer of the week. The stronger than expected GDP is a big boost to the banks and the restrained fiscal deficit is icing on the cake. The next big bet is on bond market gains as interest rates are cut by the RBI; but for that we may have to wait till the second half of 2024.

NIFTY IT INDEX – LITERALLY TAKES IT ON THE CHIN

The table captures the movement of Nifty IT index in the week to March 01, 2024.

Date	High	Low	Close
01-Mar-24	37,888.85	37,462.85	37,516.05
29-Feb-24	37,896.05	37,414.95	37,720.40
28-Feb-24	38,138.35	37,594.50	37,741.75
27-Feb-24	37,929.30	37,606.70	37,870.25
26-Feb-24	38,005.85	37,384.90	37,598.65
23-Feb-24	38,490.45	37,980.10	38,045.65
	Weekly Returns	-1.39%

Data Source: NSE

After falling by -1.12% in the previous week, the Nifty IT index fell by another -1.39% in the current week. Indian IT companies got a leg up after the last quarter results, but that enthusiasm appears to be gradually faltering. Digital impact and dividend yields are still strong narratives for the IT sector, but for now, the concern is on global uncertainty.

NIFTY OIL & GAS INDEX – LULL AFTER THE BULL STORM

The table captures the Nifty Oil & Gas index for the week to March 01, 2024.

Date	High	Low	Close
01-Mar-24	11,746.15	11,538.20	11,715.40
29-Feb-24	11,516.10	11,376.75	11,457.50
28-Feb-24	11,725.35	11,407.25	11,441.60
27-Feb-24	11,778.25	11,616.45	11,684.15
26-Feb-24	11,819.55	11,646.30	11,769.90
23-Feb-24	11,847.45	11,707.50	11,756.30
	Weekly Returns	-0.35%

Data Source: NSE

Oil & gas lost 35 bps this week after being a loser in the previous week also. However, with 70% gains in the last quarter, it would be too early to view this fall as anything other than aberration. Most of the oil stocks, including Reliance, BPCL, ONGC and IOCL sold off during the week, putting pressure on the oil & gas index for the week. The Red Sea uncertainty and the delays in oil delivery schedules is also taking its toll.

NIFTY AUTO INDEX – STANDS OUT ONCE AGAIN

The table captures the movement of Nifty Auto index in the week to March 01, 2024.

Date	High	Low	Close
01-Mar-24	20,918.25	20,473.30	20,871.95
29-Feb-24	20,481.75	20,230.20	20,412.40
28-Feb-24	20,830.40	20,325.70	20,372.35
27-Feb-24	20,825.85	20,593.00	20,788.55
26-Feb-24	20,714.45	20,537.50	20,642.40
23-Feb-24	20,711.00	20,540.75	20,621.35
	Weekly Returns	+1.22%

Data Source: NSE

After gaining 18% in the last 6 weeks, the Auto index added another 1.22% in the latest week. Markets were enthused with Tata Motors hinting at plans to monetize its EV business through an IPO. That may still be some time away, but it is likely to be value accretive for auto stocks. However, lower inflation and robust growth could offer the auto sector a delectable combination of high demand and reduced cost of funding.

NIFTY FMCG INDEX – STAYS ON THE BACK FOOT

The table captures the movement of Nifty FMCG index in the week to March 01, 2024.

Date	High	Low	Close
01-Mar-24	54,559.65	54,062.60	54,225.15
29-Feb-24	54,113.30	53,453.50	54,015.60
28-Feb-24	54,439.15	53,742.65	53,824.90
27-Feb-24	54,456.65	54,128.40	54,306.45
26-Feb-24	54,433.25	54,074.55	54,317.30
23-Feb-24	54,561.55	54,268.75	54,337.75
	Weekly Returns	-0.21%

Data Source: NSE

Unlike the previous week, which saw a lot of cautious money flow into FMCG stocks, this week saw FMCG index giving up -0.21%. The pressure of weak rural demand is still evident in the Q3FY24 results and urban demand is struggling to offset this rural shortfall. There seems to be no specific theme for FMCG, other than defensive buying. However, that would be too optimistic to expect from markets, at a time when GDP is growing at over 8%.