Weekly Musings – Index performance for week ended May 17, 2024

21 May 2024 , 07:16 AM

WHY DID THE MARKETS RALLY IN THE WEEK?

It was a week of strange ironies. Political uncertainty continued to remain elevated, VIX was above 20 levels and the FPIs were net sellers in equities to the tune of $1.34 Billion. Despite these negative headwinds, Nifty and the Sensex were up around 2% in the week. What explains this rather counter-intuitive story? For one, there was short covering. In the last few weeks, the markets had become oversold as the Nifty and the Sensex had fallen sharply. India has been a country not to bet against; and most savvy investors follow that. Hence the recent fall in the market was also used by the traders and investors to cover some of their short positions. However, there was more to the story.

The US inflation came in lower than expected and even India inflation remained flat. The Indian trade data showed an impact on merchandise exports, but the guidance given by economists of current account deficit at 1.25% of GDP in FY25 flattered the streets. Also, the US consumer inflation coming in lower than expected and the US growth continuing to be better than anticipated has been a boost to global markets. Now, markets are growing confident that the rate cuts should start as scheduled in September 2024. Above all, it is the growing confidence in the Indian markets that notwithstanding the political uncertainty and the rising VIX, the India GDP story was still intact.

DEPOSIT HIKES COULD BE GAME CHANGER FOR BANKS

In a rather innocuous move, SBI hiked deposit rates during the week between 25 bps and 75 bps. That is a substantial hike and the reasons are not hard to see. Most of the banks in India are struggling with credit growing rapidly and deposits struggling to catch up. Indian depositors are not attracted to keeping money in the banks as the returns are too low. The lending rates went up with the repo rate hike, but the deposit rates have not moved. This gave a boost to the profits of banks as the NII growth and NIMs surged to record levels for most banks. However, that is now about to end.

Banks are now going to find it tough to maintain their NII growth and the NIM of the last 3 quarters. Banks will now have no choice, but hiking deposit rates. SBI has set the cat among the pigeons and most other banks will have to hike their deposit rates, if they don’t want to lose deposits to SBI. In the next few quarters, we could see a substantial surge in the deposit growth, but that is going to come at a higher cost. Remember, banks have more than 32% weight in the Nifty and this is likely to put pressure on the Nifty. It could be a game changer for the banking stocks in the coming weeks.

BSE SENSEX 30 INDEX – CLOSES ABOVE 74,000 FOR THE WEEK

The table captures the movement of the BSE SENSEX 30 for the week to May 17, 2024.

Date	Open	High	Low	Close
18-May-24	73,921.46	74,162.76	73,920.63	74,005.94
17-May-24	73,711.31	74,070.84	73,459.80	73,917.03
16-May-24	73,338.24	73,749.47	72,529.97	73,663.72
15-May-24	73,200.23	73,301.47	72,822.66	72,987.03
14-May-24	72,696.72	73,286.26	72,683.99	73,104.61
13-May-24	72,476.65	72,863.56	71,866.01	72,776.13
10-May-24	72,475.45	72,946.54	72,366.29	72,664.47
		Weekly Returns		+1.85%

Data Source: BSE

In the previous week, the Sensex had closed below 73,000 mark and in this week it has crossed the 74,00 mark, gaining 1.85% in the week. During the week, the Sensex touched a high of 74,163 and a low of 72,366. The Sensex closed the week 1,342 points higher. While part of the rally was led by short covering, banking and auto stocks were the positive stories of the week.

NIFTY 50 INDEX – RALLIES SHARPLY DESPITE ELEVATED VIX

The table captures the movement of Nifty 50 index in the week to May 17, 2024.

Date	Low	High	Low	Close
18-May-24	22,512.85	22,520.25	22,470.05	22,502.00
17-May-24	22,415.25	22,502.15	22,345.65	22,466.10
16-May-24	22,319.20	22,432.25	22,054.55	22,403.85
15-May-24	22,255.60	22,297.55	22,151.75	22,200.55
14-May-24	22,112.90	22,270.05	22,081.25	22,217.85
13-May-24	22,027.95	22,131.65	21,821.05	22,104.05
10-May-24	21,990.95	22,131.30	21,950.30	22,055.20
		Weekly Returns		+2.03%

Data Source: NSE

During the week, FPI outflows from equities were to the tune of $1.34 Billion. FPIs have sold Indian equities to the tune of $6 Billion in the last 5 weeks. Through the week, the VIX stayed above 20. Despite these two factors, the Nifty closed with 2.03% gains for the week, gaining a full 447 points in the week. During the week, the Nifty touched a high of 22,470 and a low of 21,821, eventually closing the week above the 22,500 levels. Nifty moved up progressively during the week, helped by banking, IT, auto and oil & gas stocks.

NIFTY NEXT 50 INDEX – GIVES BUMPER RETURNS FOR THE WEEK

The table captures the movement of Nifty Next 50 for the week to May 17, 2024.

Date	Low	High	Low	Close
18-May-24	67,450.60	67,724.40	67,371.05	67,657.00
17-May-24	66,564.05	67,181.25	66,475.70	67,105.05
16-May-24	66,020.90	66,483.90	65,444.60	66,320.20
15-May-24	65,723.80	65,915.55	65,422.85	65,643.70
14-May-24	64,584.50	65,388.65	64,508.15	65,304.80
13-May-24	64,190.10	64,453.85	62,941.20	64,354.40
10-May-24	63,788.25	64,056.80	63,019.00	63,934.20
		Weekly Returns		+5.82%

Data Source: NSE

The Nifty Next 50 like most smaller indices, outperformed the major indices by a margin. 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 a palatable middle path. This week, the index gained a whopping 5.82% after losing nearly 3% in the previous week. During the week, Nifty Next-50 touched a high of 67,724 level and a low o 62,941, before closing the week at  67,657. The index showed the best strength among generic indices. The Next 50 gained 3,723 points during the week.

NIFTY MID-CAP 100 INDEX – MID CAPS GAIN WITH RISING A/D RATIO

The table captures the movement of Nifty Mid-Cap 100 in the week to May 17, 2024.

Date	Low	High	Low	Close
18-May-24	51,832.20	51,916.45	51,775.70	51,869.25
17-May-24	51,306.80	51,629.45	51,209.20	51,604.90
16-May-24	50,939.90	51,216.20	50,724.30	51,153.30
15-May-24	50,401.75	50,768.70	50,382.85	50,707.75
14-May-24	49,859.20	50,268.90	49,654.45	50,225.20
13-May-24	49,544.55	49,818.95	48,568.10	49,735.40
10-May-24	49,252.35	49,585.55	48,605.40	49,532.30
		Weekly Returns		+4.72%

Data Source: NSE

The most obvious signal of a turnaround in the mid-cap index was the sharp turnaround in the advance/decline ratio (A/D ratio). The week belonged to smaller stocks and the A/D ratio multiple showed that. For the week, the mid-cap index was up 4.72%, or 2,337 points. During the week, the Mid-Cap 100 index touched a high of 51,916 and a low of 49,655. After breaking above the 50,000 levels, the Nifty Mid-Cap index appears to have acquired a new momentum of its own.

NIFTY SMALL-CAP 100 INDEX – SMALL CAPS EXTRACT POSITIVE REVENGE

The table captures movement of Nifty Small Cap 100 in the week to May 17, 2024.

Date	Low	High	Low	Close
18-May-24	16,945.95	17,042.65	16,941.25	17,009.60
17-May-24	16,687.95	16,886.55	16,682.15	16,870.80
16-May-24	16,538.90	16,621.30	16,509.15	16,596.40
15-May-24	16,447.55	16,544.70	16,413.85	16,457.45
14-May-24	16,130.30	16,378.35	16,117.60	16,363.15
13-May-24	16,132.00	16,148.35	15,717.10	16,037.80
10-May-24	16,046.00	16,125.10	15,782.60	16,106.75
		Weekly Returns		+5.61%

Data Source: NSE

It almost looked like a revenge week for the small cap index. In the last 2 weeks, the Small Cap Index had lost over 5% and this week it closed with 5.61% gains. The small caps bounced back this with the same gusto that they had corrected in the previous week. The spike in the VIX to above 20 levels hardly made any difference to the small cap index this week. For the week, the Nifty Small Cap index gained a total of 903 points or 5.61%. During the week, the index touched a high of 17,042 levels and a low of 16,148; eventually closing the week near to the highs of the week at a level of 17,009.60.

BANK NIFTY INDEX – MIRRORS THE NIFTY AND SENSEX MOVEMENT

The table below captures the movement of BANKNIFTY in the week to May 17, 2024.

Date	Low	High	Low	Close
18-May-24	48,197.30	48,222.35	48,108.15	48,199.50
17-May-24	47,842.95	48,188.65	47,758.80	48,115.65
16-May-24	47,945.85	48,052.90	47,340.35	47,977.05
15-May-24	47,923.10	47,957.20	47,534.50	47,687.45
14-May-24	47,748.85	47,937.25	47,607.85	47,859.45
13-May-24	47,389.80	47,841.60	46,983.25	47,754.10
10-May-24	47,555.50	47,868.70	47,313.35	47,421.10
		Weekly Returns		+1.64%

Data Source: NSE

Bank Nifty gained a total of 778 points or 1.64% for the week. It has only recouped half of the losses of the previous week. During the week, the Bank Nifty touched a high of 48,222 and a low of 46,983, closing very near to the highs of the week. With its 32% weight in the Nifty, the Bank Nifty had an oversized impact on the Nifty index and generally mirrors it.

NIFTY IT INDEX – EMERGING AS A DOLLAR DEFENSIVE

The table captures the movement of Nifty IT index in the week to May 17, 2024.

Date	Low	High	Low	Close
18-May-24	33,446.25	33,494.45	33,394.00	33,438.75
17-May-24	33,763.85	33,766.70	33,361.00	33,381.85
16-May-24	33,364.65	33,705.20	33,208.25	33,668.45
15-May-24	33,144.00	33,292.35	32,986.05	33,117.40
14-May-24	33,106.75	33,321.60	32,918.70	33,122.85
13-May-24	32,910.65	33,108.25	32,669.25	33,074.60
10-May-24	33,166.10	33,178.40	32,786.55	32,935.15
		Weekly Returns		+1.53%

Data Source: NSE

In the last 4 weeks, the Nifty IT index had fallen by -7.2%. Last week, amidst the carnage in the street, the IT index closed flat, showing it was emerging as a dollar defensive. This week it has rallied by 1.53% or 504 points. Despite the broad risks to the IT index, the strength in the dollar worked in their favour and investors are looking at IT sector as a dollar defensive. For the week, the Nifty IT index touched a high of 34,494and a low of 33,108; offering an alternate hedge option to markets in the last 2 weeks.

NIFTY OIL & GAS INDEX – STAR OF THE WEEK

The table captures the Nifty Oil & Gas index for the week to May 17, 2024.

Date	Low	High	Low	Close
18-May-24	11,691.20	11,717.95	11,683.50	11,699.00
17-May-24	11,551.85	11,657.80	11,521.50	11,644.40
16-May-24	11,577.15	11,607.20	11,412.80	11,533.00
15-May-24	11,485.95	11,552.90	11,453.00	11,507.25
14-May-24	11,289.65	11,457.40	11,260.15	11,439.20
13-May-24	11,374.25	11,384.75	11,048.25	11,263.90
10-May-24	11,309.70	11,379.45	11,181.25	11,348.70
		Weekly Returns		+3.09%

Data Source: NSE

Reliance Industries led the Oil & Gas index higher by 351 points after a sharp cut last week. For the week, the Oil & Gas index touched a high of 11,718 and a low of 11,048 levels. The subdued Brent prices after taking support at $80/bbl has been positive for Indian oil and gas stocks.

NIFTY AUTO INDEX – AUTO STOCKS ARE STILL ACCELERATING

The table captures the movement of Nifty Auto index in the week to May 17, 2024.

Date	Low	High	Low	Close
18-May-24	23,389.65	23,400.05	23,305.35	23,339.30
17-May-24	23,045.65	23,386.95	23,039.40	23,285.65
16-May-24	22,892.10	22,943.80	22,448.55	22,886.85
15-May-24	22,930.60	22,946.05	22,681.00	22,759.85
14-May-24	22,476.80	22,894.70	22,435.70	22,874.80
13-May-24	22,725.00	22,731.00	22,127.90	22,462.65
10-May-24	22,725.35	22,898.30	22,672.30	22,846.90
		Weekly Returns		+2.16%

Data Source: NSE

In a sense, the auto index has defined gravity for long enough and on a consistent basis. After gaining 14% in the last 8 weeks, Nifty Auto index added another 2.16% or 492 points during the week. For the week, the Auto Index made a high of 23,400 and a low of 22,128; closing near to the high point of the week. Apart from good numbers, and robust auto demand, the fall in input costs also helped auto stocks.

NIFTY FMCG INDEX – CLOSES MARGINALLY IN THE NEGATIVE

The table captures the movement of Nifty FMCG index in the week to May 17, 2024.

Date	Low	High	Low	Close
18-May-24	55,212.10	55,278.50	55,114.05	55,217.85
17-May-24	55,094.95	55,136.60	54,735.45	55,064.70
16-May-24	54,757.30	55,066.20	54,159.35	54,997.00
15-May-24	55,172.00	55,292.35	54,507.70	54,555.95
14-May-24	55,320.35	55,504.45	55,011.75	55,054.30
13-May-24	55,386.95	55,525.90	54,816.85	55,340.70
10-May-24	54,739.25	55,407.10	54,601.75	55,276.50
		Weekly Returns		-0.11%

Data Source: NSE

After the sharp rally of last week, the FMCG index closed -0.11% lower for the week. The index lost just 59 points in the week. During the week, auto index touched a high of 55,526 and a low of 54,159. The index did recover in the last two days of the week. The revival in rural demand has helped the FMCG index hold stable, even in trying conditions.