Week Ahead: Inflation data, Q4 Results, FII activity, global cues among key market triggers this week
India’s financial markets have absorbed volatility ahead of the high stakes’ Lok Sabha elections results 2024 which has led to massive crash in equities and debt so far this month. D-Street suffered one blow after another last week over massive outflows by foreign investors and the significant rise in the market’s volatility index. Majority of the analysts say that weak sentiments will likely continue till the election results in the absence of any major positive triggers.
In the third week of May, investors will keenly eye the ongoing the January-March quarter results for fiscal 2023-24 (Q4FY24), domestic and global macroeconomic data, foreign fund outflows, crude oil prices, and global cues.
Domestic equity benchmarks declined two per cent during the past week, logging their worst since mid-March and snapped two straight week of gains, primarily influenced by weak domestic signals. The negative sentiment prevailed from the outset, exacerbated by a continuous rise in the India VIX, indicating heightened volatility.
Also Read: Stock Movers | Tata Motors, HDFC Bank among top 10 Nifty 50 stocks that swung 3-9% in first 7 sessions of May
The sell-off in certain major stocks in response to their earnings contributed to the downward pressure as the week unfolded. Ultimately, both Nifty 50 and Sensex closed near their lowest points for the week at 22,055.20 and 72,664.47 respectively. Major sectors such as financials, energy, and metals recorded significant losses, while FMCG, automotive, and IT sectors demonstrated resilience, mitigating the overall impact.
Broader indices also experienced declines ranging from 2.7 per cent to five per cent. Nifty Midcap shattered two two-week gaining streak dragged by Voltas and Piramal enterprise ending at the 49532 level while the Nifty Small cap closed at the 16106 level dragged by Sonata Software and Intellect Design.
‘’The market’s decline can be largely attributed to the prevailing uncertainty surrounding the general elections, particularly following the third phase of voting, which witnessed a decrease in voter turnout compared to 2019,” said Arvinder Singh Nanda, Senior Vice President, of Master Capital Services Ltd.
Additionally, factors such as continued selling by foreign investors, the delay in a US interest rate cut, muted fourth-quarter earnings, and a substantial increase in the India VIX, which increased by nearly 26 per cent this week, have all contributed to the market’s decline, according to the market analyst.
A sector-specific action was visible in FMCG and auto stocks last week, aided by an expectation of a revival in rural demand in H1FY25. Whereas PSU banks underperformed due to the Reserve Bank of India (RBI’s) tighter norms on lending to projects under development.
“Throughout the week, markets largely exhibited a downward trend, signalling an emerging pattern where investors are opting to sell during rallies. This inclination stems from the domestic market’s premium valuation and concerns surrounding the elections due to a lower voter turnout. Despite Q4 domestic earnings largely meeting expectations, there’s a noticeable moderation in the overall earnings landscape,” said Vinod Nair, Head of Research, Geojit Financial Services.
In the coming week, primary markets will witness heavy investor interest as several initial public offerings (IPO) and listings are slated across the mainboard and small-and-medium enterprises (SME) segment. The week will be critical from the domestic and technical point of view as investors will global indicators and the latest corporate results.
Overall, analysts expect the negative tone to continue for Nifty 50. Despite the current volatility and downward pressure, a potential buying opportunity exists if Nifty can hold above its previous low of 21,777. Experts advise traders to restrict long positions in FMCG and auto that exhibit strength amid volatility.
Here are the key triggers for stock markets in the coming week:
Domestic macroeconomic data
Investors will also keenly eye macroeconomic data this week as India’s consumer price index (CPI)-based inflation or retail inflation rate along with wholesale price index (WPI)-based inflation for April 2024 are also scheduled to be released this week.
India’s inflation is poised to continue its slowdown in April due to widespread cooling in prices across food and core goods. ‘’We estimate that the CPI rose by 4.80 per cent year on year, down from a 4.85 per cent increase in March, marking the fourth consecutive month of milder CPI readings,” said Amit Goel, Co-Founder & Chief Global Strategist, Pace 360.
Food inflation is expected to decrease for the second consecutive month, dropping to 7.2 per cent from 7.7 per cent in March. Core inflation, a measure tracked by the RBI that includes gasoline and diesel, is likely to decrease further to 3.2 per cent from 3.3 per cent in March, as per the analyst.
This disinflationary trend is propelled by the RBI’s stringent policies aimed at bringing the CPI back below the four per cent medium-term target as early as the first quarter of 2025. ‘’We anticipate that this downward trajectory will prompt the RBI to transition to a dovish stance in June, followed by the initiation of a rate-cutting cycle in August,” added Goel.
Q4 Results
Domestically, the next batch of Q4 earnings reports will drive stock-specific movements. DLF, Zomato, Apollo Tyres, Bharti Airtel, Dixon Technologies, India Energy Exchange (IEX), Shree Cements, GAIL, JSW Steel, RVNL are some of the big names in the list.
6 new IPOs, 11 listings to hit D-Street
In the mainboard segment, Go Digit IPO will open for subscription on May 15. In the SME segment, Mandeep Auto Industries IPO, Veritaas Advertising IPO and Indian Emulsifier IPO will open for bidding May 13. Quest Laboratories IPO will open on May 15, while Rulka Electricals IPO will open on May 16.
Among the ongoing issues, Energy Mission Machineries IPO will close on May 13. Premier Roadlines IPO, Aztec Fluids & Machinery IPO, and Piotex Industries IPO will close for bidding on May 14. ABS Marine Services IPO will close on May 15.
Among listings, shares of TBO Tek and Aadhar Housing Finance will debut on BSE, NSE on May 15. Additionally, on May 14, shares of Refractory Shapes Limited and Winsol Engineers Limited will get listed on NSE SME, while shares of Finelistings Technologies Limited will debut on BSE SME.
On May 15, shares of Silkflex Polymers (India) Limited will get listed on NSE SME, and shares of TGIF Agribusiness Limited will debut on BSE SME. On May 16, shares of Energy Mission Machineries will debut on NSE SME. On May 17, shares of Piotex Industries and Aztec Fluids & Machinery will get listed on BSE SME, while shares of Premier Roadlines will debut on NSE SME.
FII Activity
The selling pressure on Indian equities due to bulk selling by the foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) last week, created a bloodbath on D-Street. FIIs have been on a selling spree in Indian markets with the total outflows nearing ₹25,000 crore in May 2024.
FIIs have offloaded ₹24,975.5 crore within the first seven market sessions so far in May 2024. On the other hand, domestic institutional investors (DIIs) were net buyers for all sessions, with a total investment of ₹19,410 crore, according to stock exchange data. FPIs offloaded ₹17,083 crore worth of Indian equities and the total outflow stands at ₹16,797 crore as of May 10.
There have been some key reasons behind the recent aggressive selling by foreign investors. The rise in US bond yields, robust US dollar and a hawkish stance by the US Federal Reserve have triggered massive outflows from India.
However, the current underperformance of Indian markets and the stronger performance of Chinese markets is another major reason behind the bulk selling. Chinese markets are far more cheaper for foreign investors compared to Indian markets as the price to earnings (PE) ratio of India is double that of China’s.
‘’This selling pressure overshadowed a strong performance in global markets, keeping domestic indices under pressure throughout the week. FII outflows were significant, exceeding ₹22,000 crore last week. While DIIs did buy Indian stocks to the tune of ₹17,000 crore, their buying wasn’t enough to offset the selling by FIIs,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.
Global Cues
Global market ended the week on a positive note with FTSE making new all-time high at 8455 and DJI closing with strong gains of 2.16 per cent at 39,579. The Bank of England (BoE) has kept its main UK interest rate at a 16-year high of 5.25 per cent but hinted at a potential rate cut in next meeting in June leading to European indices rising this week. Weaker US payroll data has heightened expectations of potential rate cuts by the Fed.
In the coming week, focus will be on the US producer price index (PPI) and consumer price index (CPI) figures. Additionally, Federal Reserve Chair Jerome Powell’s speech will be a key event to watch. China’s industrial production data and Japan’s GDP figures round out the important releases for the week.
‘’Despite the negative local sentiment, the strength observed in global markets, particularly in the US, has been instrumental in curbing the pace of decline. It is essential for investors to closely monitor both global market performance and local factors for market cues,” said Ajit Mishra – SVP, Research, Religare Broking Ltd.
Oil Prices
Crude oil prices have become resistant to geopolitical risks, however, the higher-for-longer US interest rates and stronger dollar are hurting the trajectory of crude oil prices. Comments from US central bank officials indicated higher-for-longer interest rates, which could hinder demand from the world’s largest crude consumers.
On Friday, Dallas Federal Reserve President Lorie Logan said that it was unclear whether the monetary policy in the world’s largest crude oil consumer was tight enough to bring down inflation to the US Federal Reserve’s two per cent target.
In the previous session, Brent crude futures settled at $82.79 a barrel, down $1.09, or 1.3 per cent. US West Texas Intermediate crude settled at $78.26 a barrel, down $1.00, or 1.3 per cent. For the week, Brent clocked a loss of 0.2 per cent, while WTI recorded a rise of 0.2 per cent. Higher interest rates typically slow down the economic activity and weaken oil demand.
Corporate Action
In the third week of May, several private-sector companies along with other banks and PSUs including Tata Consultancy Services (TCS), Hindustan Zinc, Coforge, Godrej Consumer Products, among others are trading ex-dividend. Some stocks are also trading ex-split and ex-bonus in the coming week such as Canara Bank and others. Check full list here
Technical View
On the technical front, the Nifty 50 index has approached its lower trading range after a recent correction from its record high. Since the beginning of 2024, the index has exhibited a sideways consolidation pattern.
The outlook suggests a continuation of the negative tone in the Nifty, following its breakout from the rising channel on the daily chart. Attention is now focused on the 21,800 level as a crucial reference point for the index, with a potential break signaling a move towards the 21,200-21,400 range, according to Religare Broking.
‘’Conversely, a rebound would encounter significant resistance around the 22,350-22,500 zone. Given the pressure across most sectors, traders are advised to adjust their positions accordingly, restricting long positions to sectors such as FMCG and automotive that exhibit strength amidst the downturn,” said Religare Brokings’ Ajit Mishra.
Santosh Meena of Swastika Investmart agreed. ‘’A successful defense of 21,777 level could trigger a recovery. On the upside, the 22,200-22,400 zone presents a potential resistance area. If Nifty can overcome this hurdle, a short-covering rally might ensue. Conversely, a breach below 21,777 could lead to further selling pressure, pushing the index towards 21,550 and even 21,200,” said Meena.
The Bank Nifty index experienced a sharp decline after failing to surpass the psychological barrier of 50,000. Currently, it finds itself hovering near its crucial 100-day moving average (DMA) at around 47,200. If the index can maintain this support level, a potential rebound is in sight.
‘’At present, the index encounters immediate resistance around the 48,000 mark, where there’s notable aggressive call writing activity. A decisive breakthrough above this resistance level could prompt short-covering actions, potentially driving the index higher towards the 48,800 mark,” said Master Capital Services’ Arvinder Singh Nanda.
‘’However, a breakdown below 47,200 level could exacerbate selling pressure, dragging the index down to 46,600 and potentially even 46,200,” added Santosh Meena.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, and not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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