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Weekly Musings – Index performance for week ended April 26, 2024

30 Apr 2024 , 09:59 AM

WHAT DOES THE SHARP FALL IN VIX INDICATE?

If the previous week had seen a sharp spike in the VIX (volatility index); the latest week saw a sharp fall, with the VIX falling 20% in a single day on Monday. Here are the 3 key takeaways and how it impacted the direction of the markets.

It is a clear indicator that the market is pricing in much lower risk. This virtually offsets the spike in the fear factor in the previous week and more. The sharp fall in VIX could be an indication that the markets do not anticipate any negative surprises from the election outcome, and it should be business as usual.
The sharp fall in VIX has two distinct implications for large and mid-sized stocks. For the large caps, it is an indication that the downside risks in the generic indices like the Nifty and Sensex should be limited. For mid-caps, it means the natural volatility risk at higher levels has reduced, and that normally spurs these smaller stocks into a fresh rally.
There is also a counter-intuitive interpretation to any sharp fall in the VIX. A sharp 20% fall in the VIX indicates a sharp fall in the demand for hedging of risk. Normally, markets are known to correct when the hedges are at their lowest levels, since that is when any fall in the market tends to get accentuated. We just need to wait and watch for now!

Overall, the sharp fall in VIX shows that the market may have set the tone for re-rating the small and mid-cap stocks at current levels.

WHAT SHOULD EQUITY MARKETS TRACK NEXT WEEK?

The coming week has 5 data points to be tracked closely by markets.

There are big results expected in the coming week including Ultratech, IOCL, Adani Power, Ambuja Cements, Havells, Adani Ports SEZ and Coal India. Till now, the Q4 results have shown some signs of pressure on the banking and the IT sector.
The Fed policy is expected to be announced on May 01, 2024. While no rate action is expected, the Fed is likely to officially communicate the number of rate cuts the markets should ideally expect in the current calendar year.
Core sector numbers for March 2024 and for the full FY24 will be put out this week. The core sector holds the key to market sentiments as it is an outcome of government spending on capex and also has a strong multiplier effect on GDP.
Fiscal deficit update for FY24 will be closely tracked to check if the government is able to meet its revised target of 5.8% of GDP. That would set the tone for the government to move towards 5.1% fiscal deficit in FY25 and 4.5% in FY26.
Crude and rupee will be closely tracked in the coming week. Crude got close to $90/bbl last week while VIX fell sharply to the range of 10-11. Any spike in the crude prices or in the VIX in the coming week will be negative for the market sentiments.

Additionally, the markets will also focus on FPI flows, US bond yields and the US dollar index; although the last two would react to the Fed statement.

BSE SENSEX 30 INDEX – MAKES ANOTHER DASH FOR 75,000

The table captures the movement of the BSE SENSEX 30 for the week to April 26, 2024.

Date	Open	High	Low	Close
26-Apr-24	74,509.31	74,515.91	73,616.65	73,730.16
25-Apr-24	73,572.34	74,571.25	73,556.15	74,339.44
24-Apr-24	73,957.57	74,121.61	73,788.61	73,852.94
23-Apr-24	74,048.94	74,059.89	73,688.31	73,738.45
22-Apr-24	73,666.51	73,767.80	73,227.32	73,648.62
19-Apr-24	71,999.65	73,210.17	71,816.46	73,088.33
		Weekly Returns		+0.88%

Data Source: BSE

After a weak close last week, the Sensex bounced 642 points this week. Sensex touched a high of 74,571, but closed the week at 73,730 levels after the sharp sell-off in in the Kotak Bank stock on Friday. The Sensex started the week below 72,000, but did make a dash for the 75,000 mark during the week. While geopolitical risk continued in the background, it was the sharp fall in the VIX that led to a surge in market confidence in the indices. Q4 results have been a mixed bag till now.

NIFTY 50 INDEX – SURGES DESPITE NEGATIVE FPI FLOWS

The table captures the movement of Nifty 50 index in the week to April 26, 2024.

Date	Low	High	Low	Close
26-Apr-24	22,620.40	22,620.40	22,385.55	22,419.95
25-Apr-24	22,316.90	22,625.95	22,305.25	22,570.35
24-Apr-24	22,421.55	22,476.45	22,384.00	22,402.40
23-Apr-24	22,447.05	22,447.55	22,349.45	22,368.00
22-Apr-24	22,336.90	22,375.65	22,198.15	22,336.40
19-Apr-24	21,861.50	22,179.55	21,777.65	22,147.00
		Weekly Returns		+1.23%

Data Source: NSE

In the last few weeks, the Nifty had consistently fallen has fallen sharply from its all-time high of 22,776. This week, it smarted a smart recovery, gaining 273 points, even as the FPIs were net sellers of $126 Million in the week. The buying support from the domestic mutual funds, LIC and the sharp fall in VIX kept the Nifty buoyant during the week. In terms of sectors, the big boost to the Nifty came from auto stocks and FMCG stocks but the real action in the week was not in the large cap indices, but in the smaller indices.

NIFTY NEXT 50 INDEX – GIVES 3 TIMES BETTER RETURNS THAN NIFTY

The table captures the movement of Nifty Next 50 for the week to April 26, 2024.

Date	Low	High	Low	Close
26-Apr-24	63,911.45	64,375.25	63,905.35	64,134.55
25-Apr-24	63,317.10	63,766.35	63,153.50	63,704.45
24-Apr-24	63,003.25	63,460.10	62,945.50	63,277.40
23-Apr-24	63,068.90	63,068.90	62,703.40	62,798.55
22-Apr-24	62,514.15	62,759.35	62,204.95	62,683.65
19-Apr-24	61,469.45	62,051.70	60,647.25	61,887.90
		Weekly Returns		+3.63%

Data Source: NSE

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, Nifty Next-50 offers the middle path. This week, the index gained 3.63%. The Nifty Next 50 is the list of 50 companies with potential to become Nifty companies in the near future. During the week, Nifty Next-50 touched a high of 64,375 levels but closed at 64,135, as the sharp fall in VIX helped the index gain. The Next 50 gained 2,246 points during the week.

NIFTY MID-CAP 100 INDEX – YES, MID-CAPS ARE BACK AGAIN

The table captures the movement of Nifty Mid-Cap 100 in the week to April 26, 2024.

Date	Low	High	Low	Close
26-Apr-24	50,365.35	50,684.50	50,333.50	50,624.10
25-Apr-24	50,010.35	50,271.05	49,822.35	50,228.50
24-Apr-24	49,855.15	50,050.40	49,807.30	49,991.90
23-Apr-24	49,396.45	49,698.35	49,291.90	49,614.85
22-Apr-24	49,118.10	49,215.85	48,916.15	49,096.40
19-Apr-24	48,548.40	48,913.70	47,952.70	48,696.95
		Weekly Returns		+3.96%

Data Source: NSE

In the last few weeks, the Nifty Mid-Cap 100 did show a bounce from lower levels. However, after cracking 274 bps or 1,371 points last, the tables entirely changed in the latest week. This week, the Nifty Mid-cap index gained 1,927 points or 3.96%. More importantly, the mid-cap index closely decisively above the 50,000 mark, after staying below that mark for a long time. On Friday, the NSE Mid-Cap index touched its lifetime high of 50,685 levels, before retreating. Mid-cap stocks are a big beneficiary of the sharp fall in VIX.

NIFTY SMALL-CAP 100 INDEX – THANKS TO THE FALLING VIX

The table captures movement of Nifty Small Cap 100 in the week to April 26, 2024.

Date	Low	High	Low	Close
26-Apr-24	16,956.80	17,051.55	16,910.75	16,981.30
25-Apr-24	16,774.10	16,899.85	16,752.80	16,886.80
24-Apr-24	16,775.50	16,822.60	16,728.50	16,746.95
23-Apr-24	16,587.10	16,702.60	16,571.85	16,687.15
22-Apr-24	16,379.45	16,502.45	16,369.85	16,484.20
19-Apr-24	16,115.65	16,337.00	15,928.50	16,270.40
		Weekly Returns		+4.37%

Data Source: NSE

There was no ambiguity about the small cap index in the wee as it gained 4.37%, rallying a full 711 points in the week. Like the Mid-Cap 100, even the small cap index touched its life-time high of 17,052 on Friday and this shows the wind is now clearly blowing in favour of the small and mid-cap stocks. Crude and rupee volatility are risks, but when there is so much of retail appetite for smaller stocks, risks are just part of the game.

BANK NIFTY INDEX – KOTAK BANK SOBERS THE INDEX ON FRIDAY

The table below captures the movement of BANKNIFTY in the week to April 26, 2024.

Date	Low	High	Low	Close
26-Apr-24	48,660.00	48,679.65	48,088.25	48,201.05
25-Apr-24	47,772.65	48,625.45	47,737.20	48,494.95
24-Apr-24	48,120.90	48,246.20	48,028.70	48,189.00
23-Apr-24	48,299.60	48,302.70	47,899.30	47,970.45
22-Apr-24	48,145.70	48,146.30	47,628.45	47,924.90
19-Apr-24	46,744.95	47,668.70	46,579.05	47,574.15
		Weekly Returns		+1.32%

Data Source: NSE

After the Bank Nifty fell sharply by 2.04% in the previous week, the latest week saw the Bank Nifty bounce by 1.32%. Overall banking numbers have shown some pressure on NII growth and on NIMs. However, that was expected. Had it not been for the Kotak Bank regulatory shocker, the bank index could have performed still better for the week. Bank Nifty still closed with gains of 627 points for the week.

NIFTY IT INDEX – SHORT COVERING WAS THE NAME OF THE GAME

The table captures the movement of Nifty IT index in the week to April 26, 2024.

Date	Low	High	Low	Close
26-Apr-24	33,743.10	34,307.45	33,574.60	33,666.20
25-Apr-24	33,283.45	33,659.45	33,283.45	33,554.40
24-Apr-24	33,829.55	33,840.10	33,393.65	33,442.55
23-Apr-24	33,752.85	33,803.85	33,614.25	33,714.55
22-Apr-24	33,488.75	33,627.55	33,341.65	33,538.75
19-Apr-24	33,047.35	33,538.55	32,915.50	33,368.30
		Weekly Returns		+0.89%

Data Source: NSE

The IT index had fallen sharply by -4.71% in the previous week after the Infosys Q4 results had disappointed the street. However, it was quite evident that the risks were overstated and that led to the IT index bouncing by 89 bps in the week. However, with operating margins and CC revenue guidance still tepid, this could, at best, be a dead cat bounce. It would be too premature for investors take out their IT shopping baskets.

NIFTY OIL & GAS INDEX – CLOSES THE WEEK WITH STRENGTH

The table captures the Nifty Oil & Gas index for the week to April 26, 2024.

Date	Low	High	Low	Close
26-Apr-24	11,774.00	11,862.75	11,740.35	11,785.15
25-Apr-24	11,640.75	11,767.15	11,629.85	11,741.90
24-Apr-24	11,638.35	11,709.85	11,588.65	11,658.60
23-Apr-24	11,715.20	11,755.00	11,564.40	11,581.55
22-Apr-24	11,682.45	11,695.90	11,612.30	11,666.90
19-Apr-24	11,544.55	11,667.60	11,446.85	11,609.85
		Weekly Returns		+1.51%

Data Source: NSE

The week saw the oil & gas index closing 151 bps higher as the windfall tax risks got absorbed. The theme that gained in the week was the CGD (city gas distributers), but they have minimal weight in the index. The big contributors were BPCL and Oil India. There are concerns over oil price volatility in the Brent markets but what should favour oil stocks is that oil prices look set to remain robust for some time now.

NIFTY AUTO INDEX – BOUNCES SHARPLY AFTER THE FALL

The table captures the movement of Nifty Auto index in the week to April 26, 2024.

Date	Low	High	Low	Close
26-Apr-24	22,219.30	22,286.55	22,081.10	22,111.55
25-Apr-24	21,938.40	22,221.60	21,852.95	22,174.05
24-Apr-24	21,963.80	22,023.40	21,869.25	21,896.90
23-Apr-24	21,897.95	22,006.25	21,806.15	21,914.30
22-Apr-24	21,846.05	21,854.20	21,653.75	21,812.70
19-Apr-24	21,483.30	21,637.10	21,144.75	21,609.70
		Weekly Returns		+2.32%

Data Source: NSE

The Nifty Auto Index had gained 7.2% in last 5 weeks and this week it added another 2.32%. With the US Fed and the RBI looking ambivalent on rate cuts, that may be off the table for now. However, the big bet is on robust demand for traditional cars and the shift to EVs. With household debt at 39.1% and rising, a lot of these flows are likely to go into buying cars. However, robust auto demand and the EV shift will be long-term narratives.

NIFTY FMCG INDEX – TURNS THE START OF THE WEEK

The table captures the movement of Nifty FMCG index in the week to April 26, 2024.

Date	Low	High	Low	Close
26-Apr-24	54,441.50	54,601.60	54,119.75	54,300.75
25-Apr-24	53,998.45	54,358.20	53,642.05	54,291.65
24-Apr-24	53,755.35	54,033.95	53,731.60	53,932.50
23-Apr-24	53,622.00	54,037.95	53,523.45	53,905.30
22-Apr-24	53,318.90	53,594.60	53,128.20	53,499.45
19-Apr-24	52,530.00	53,229.75	52,398.75	53,055.45
		Weekly Returns		+2.35%

Data Source: NSE

The FMCG sector bounced 2.35% in the week after persistent losses in the last few weeks. Even as the defensive bets on FMCG continued, the real action in the FMCG space was in the smaller stocks like Colgate Palmolive, Varun Beverages, UBL, and Marico which have seen a virtual re-rating in the last few weeks. Aa a growth story, FMCG may still have a long way to g

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