Sectoral Indices performance in April, 2024

9 May 2024 , 10:53 AM

HOW SECTORAL INDICES PERFORMED IN APRIL 2024

One of the best ways to understand the stock market performance and the outlook for the next week is to look at the swing factors. Normally, the biggest swing factors are visible in sectoral returns. One can argue that 1-month returns and 3-month returns are not too indicative, but that is not the point here. The idea is to understand where the short term swings are coming from. Our primary trigger is the 1-month returns and the confirmation of the swing is offered by 3-month returns. The table below is self-explicit.

Sectoral Index	1-month Returns (%)	3-month Returns (%)
Nifty Metal	11.13	15.15
Nifty PSU Bank	8.54	21.27
Nifty Realty	8.06	13.69
Nifty Consumer Durables	7.09	10.07
Nifty Media	5.46	-11.85
Nifty Auto	4.95	16.98
Nifty Bank	4.82	7.39
Nifty Private Bank	4.16	3.99
Nifty Financial Services	4.06	6.62
Nifty Oil & Gas	3.37	10.57
Nifty FMCG	0.55	-0.97
Nifty Pharma	-0.13	5.99
Nifty Healthcare Index	-0.70	5.04
Nifty IT	-4.86	-9.37

Data Source: NSE

Here are some key takeaways from the tabulation of short term sectoral returns above.

• Let us start with the leaders. Metals led the show in April 2024 with 11.53% returns, which is not surprising with the surge in demand for metals in sync with an upturn in the capital investment cycle. Also, Chinese demand is expected to grow, which led to a spike in most metals and alloys in April. Amon the other top performers were PSU banks, realty, and consumer durables. These sectors showed traction in terms of 1-month returns and 3-month returns.
• Let us turn to the laggards. No surprises, as IT was the only sector that showed weakness in terms of 1-month returns and 3-month returns. Healthcare also reported marginally negative returns in April, but the 3-month returns are still modest at over 5%.
• Did any sector show divergence between 1-month and 3-month trends? Autos and oil gas were relatively subdued in April compared to the previous quarter, while FMCG actually did better in April than it did in the quarter overall.

Clearly, the short term trends and the long term trends over 1-year and 3-year returns still gravitate towards favoured sectors like metals, realty, and PSU banks.

WEEK THAT WAS; THE GOOD, THE BAD AND THE UGLY

For the latest week to May 03, 2024, FPIs were net sellers to the tune of $145.71, after net selling of $125.51 Million in the previous week. Here are 8 key data points that influenced FPI flows this week.

• The big news was the US Fed statement on May 01, 2024. It underlined that it was still too premature to even talk about rate cuts, as 2% inflation still looked elusive. The Fed has ruled out any rate cuts in the next few months, but the Fed also did not change its assurance on 3 rate cuts given by the Fed chair in the March 2024 policy statement. Overall markets interpreted the Fed statement language positively.
• The fall in oil prices globally was the big story of the week. From a high of $89/bbl it fell to nearly $82/bbl, a sharp fall of nearly 8% in a single week. The sharp fall was caused by a spike in US crude inventories. The US oil inventories were expected to fall by -1.50 Million barrels, but instead increased by +4.91 Million barrels. This resulted in a sharp fall in the price of crude oil in the week.
• India core sector growth for March 2024 came in lower at 5.2%, despite a lower base; which is not too impressive. One reason was the tepid performance of the hydrocarbons and the fertilizers sectors in the month. However, positive traction did come from coal, electricity, steel, and cement. The good news was that the full year core sector growth for FY24 at 7.51% was substantially above the pre-COVID 10-year average of 3.6%.
• A good barometer of economic activity is the GST collections and the collections for the month of April 2024 touched a record level of ₹2,10,000 Crore. This is not just the highest monthly figure ever, but also represents a 12.5% growth on a yoy basis. The sharp growth in GST collections is a good signal that revenues are likely to remain robust for the coming year also. Economic activity has anyways been robust in the year as is evident from the spike in nominal GDP during the year.
• VIX continued to pose a problem in the week as it spiked from close to 10 levels to cross the 15 levels, before settling just under 15. The spike in risk perception amidst a volatile global scenario and ongoing election in India were clearly visible. It also means that FPIs are likely to price in higher risk in the short run and that would mean continuation of FPI outflows during the coming week also. We have to wait and watch.
• In a positive turn of events for Kotak Bank, JP Morgan upgraded the stock from neutral to Buy on valuation attractiveness after the fall. JPM has also raised the price target for Kotak Bank to ₹2,070 per share, which would allow good upsides of nearly 34% for the investors from the current levels. That should hopefully stem the fall in the stock price of the stock for the time being.
• In an interesting turn of events, government of India has allowed foreign portfolio investors (FPIs) registered at GIFT City in Gujarat to issue participatory notes (P-Notes) to their clients globally. Originally, this facility was only available to banks at the GIFT City. Now all FPIs registered with SEBI can issue P-Notes, subject to basic compliance conditions and rules. P-Notes are offshore derivative instruments (ODIs) on Indian equities issued to global investors who do not want to take FPI membership in India, but still want to trade the Indian markets
• The two major barometers from the US economy, viz. the US bond yields on the 10-year benchmark and the US dollar index (DXY) were both on tapering mode in the latest week. The US bond yields tapered by about 8 bps while the US dollar index fell to below 105 levels before closing just above the 105 mark. This was an outcome of the sober outlook for rates provided by the Fed and also the Morgan Stanley report which reiterated that the Fed may still cut rates thrice in the current calendar year, starting from July. These news flows subdued the bond yields and the dollar index in the week.

It may have been a volatile week, but the broad message from the Q4 results was that the top line revenues are under pressure, although operating leverage has helped most of the Indian industrials to report better than expected net profits in the fourth quarter. That trend is true for fiscal year FY24 also.

STOCK MARKET TRIGGERS FOR COMING WEEK TO MAY 10, 2024

Here are some of the key stock market triggers for the week to May 10, 2024.

• Last week, the Nifty closed +0.25% higher, Sensex closed +0.20% higher and the Nifty Next-50 closed +2.55% higher. The generic Nifty and Sensex saw tepid growth in the last week as the overall gains from banking and auto sector stocks were offset by losses in the IT and FMCG sector stocks. There was still coms caution in the mid-caps and small caps, which looks set to continue in the coming week also. The Mid-cap index was up +0.61% while the small cap index closed -0.26% lower for the week.
• There are some key Q4 results and FY24 results expected for large cap companies like Reddy Labs, L&T, Hero Motocorp, Asian Paints, SBI, Cipla, Eicher Motors, and Tata Motors this week. In addition, next rung companies like BPCL, HPCL, PNB, BOB, BOI, Canara Bank, ABB India, Tata Power, TVS Motors, Marico, and Voltas will also announce results in the week. In addition, the week also see the dividend record dates of HCL Tech, Oracle, Laurus Labs, Aptech, DCB, HDFC Bank, BOM, Ramkrishna Forgings, UCO Bank. Overall, it is likely to be a busy week for corporate announcements and action.
• The late spike in the VIX to around 15 levels, will be an overhang on the markets, unless the VIX really tapers in the coming week. The VIX has been volatile in the last few weeks and the election uncertainty is only adding to it. That has resulted in FPI flows for 3 weeks in a row with the FPIs selling $146 Million in equities in the previous week. However, the coming week could see respite on FPI flows with 3 large IPOs expected to open and close in the current week.
• After the sharp fall in the previous week, the crude oil prices will be in focus during the current week. IN the previous week, a spile in US inventories led to Brent crude prices falling sharply from $89/bbl to $82/bbl. The level of $80/bbl is the key support for oil and any level below that could open further and sharper downsides for oil prices. In addition, the US bond yields and the dollar index (DXY) will also be in focus in the current week, especially after the fall in both these barometers last week.
• In key Fed speak; John Williams, Neil Kashkari, and Michelle Bowman are slated to speak this week. While Michelle Bowman and John Williams are known to be hawks, even Neil Kashkari has been giving out hawkish signals in recent weeks. There is a lot of ambivalence from the Fed on the trajectory of rate cuts and these speeches will provide the much needed clarity on the subject.
• The coming week will also focus on 2 key factors viz, the IPO story and the IIP story. Let us talk about the IIP first. The index of industrial production for March 2024 and for FY24 will be put out this week on Friday. The focus would be more on manufacturing IIP. In addition, the IPO market will see 3 mainboard IPOs raising ₹6,393 Crore this week. The IPO issuers include Indegene Ltd, Aadhar Housing Finance and TBO Tek Ltd.
• Finally, we focus on the key global data points for the week. Key data points from the US include API crude data, whole sale inventories, MBA mortgages, initial jobless claims, and Atlanta Fed GDP. In ROW data points, we have PMI, PPI, HCOB (EU); PMI, household spends, current account (Japan); PMI, CPI, vehicle sales (China); GDP, rate decision (UK).

Let us finally turn to what all this means for the market trajectory in the coming week.

PARTING THOUGHTS ON NIFTY AND SENSEX NEXT WEEK

For the coming week, there are 3 things to watch out for, and which would determine the context for the future direction of the market.

• The big story will be the sharp volatility in the VIX, which spiked from 10 levels to 15 levels in the previous week. The markets will be looking for a sobering of the VIX levels in the coming week, and that could most likely happen as more data points come in on election expectations.
• Nifty supports are placed at 22,300 for the week; and break-out resistance is pegged at 22,800 levels on the upside. That still looks some distance away. However, the spike in VIX to above the 14-15 levels opens up the possibility of a further correction in markets. The Nifty is likely to hold 22,300 for now, although anything beyond 22,500 does look tough for now.
• What are the expectations on the Sensex? The Sensex faced resistance at 75,000 levels, which led to a sharp correction. For now, it looks to consolidate in the range of 74,000 to 75,000 till the outcome of the elections are known. If the Sensex is able to decisively break above the 75,000 mark, then we could the doors opening for higher levels like 78,000 and 80,000, but that would be some time away.

This is a rather tepid week in terms of data flows, but the next week is a buys week in terms of data flows on the inflation front; both in India and the US.