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Markets end in red as higher US inflation dented rate cut hopes
Mar-15-2024

Indian equity benchmarks ended the passing week in red terrain as higher US inflation numbers dented investors’ sentiments of rate cut hopes. Sentiments also dampened as stress test results trickle in. Markets started the week on a pessimistic note amid uncertainty about the outlook for interest rates. Traders paid no heed towards report that Moody’s Ratings raised India’s GDP growth forecast for FY24 to around 8 per cent from 6.6 per cent on the back of strong domestic consumption and capital expenditure. Market participants also overlooked data from the Reserve Bank of India (RBI) showing that foreign exchange reserves rose $6.6 billion to a two-year high of $625.6 billion in the week ended March 1. In the previous week, reserves had risen $3 billion to $619.1 billion. Key gauges witnessed consolidation as traders took a note of CEO of Crisil Amish Mehta’s statement that the Indian economy is expected to show resilience on the back of sustained domestic demand and consumption. He added that the agency expects GDP growth in the upcoming fiscal to moderate to 6.8 per cent. Local indices once again witnessed steep fall during the week as sentiments dented after report that market regulator Securities and Exchange Board of India (Sebi) has been scrutinizing flows into mid, and small-cap stocks amid a massive rally in the segment. On the economic front, Index of Industrial Production (IIP), slowed to 3.8 per cent in January 2024, mainly due to poor performance of manufacturing, mining and power sectors. It was 5.8 in January 2023. Meanwhile, India’s retail inflation eased to a four-month low of 5.09 per cent in February 2024. The inflation based on Consumer Price Index (CPI) was almost unchanged compared to the January number of 5.10 per cent, though prices of certain items in the food basket firmed up. On the very next day, markets witnessed sharp recovery as sentiments got boost after global ratings agency Fitch Ratings raised India's FY25 GDP growth forecast to 7 percent from 6.5 percent earlier as it expects the economy to continue its strong expansion. Fitch expects 50 bps rate cut by the Reserve Bank of India from July to December and foresees India's CPI inflation gradually declining to 4 percent by the end of 2024. Some support also came as inflation based on wholesale price index (WPI) eased in the month of February 2024 to 0.20% from 0.27% in January, aided by decline in prices of non-food articles, coal, basic metals, other non-metallic mineral products, fabricated metal products (except machinery & equipment), rubber & plastic products and printing & reproduction of recorded media etc. But, recovery proved short-lived and selling on final day of the week made sure that markets end with a significant cut as hotter-than-expected US inflation data sparked fears of delays in rate cuts. Sentiments also remain dampened after several fund houses that invest in small and midcap stocks, on the instructions of the mutual fund regulatory body, the Association of Mutual Funds in India, released stress tests of their schemes. Some cautiousness also crept in with report by global rating agency Moody’s asserting that the large of number scheduled elections in various countries in 2024 increases risks of shifts in policy and policy effectiveness.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 1475.96 points or 1.99% to 72,643.43 during the week ended March 15, 2024. The BSE Midcap index losses 1602.41 points or 4.02% to 38,250.44, while Smallcap index slipped 2640.82 points or 5.91% to 42,012.75. On the sectoral front, S&P BSE Realty was down by 675.26 points or 9.33% to 6,560.58, S&P BSE PSU was down by 1,628.66 points or 8.49% to 17,555.34, S&P BSE Metal was down by 2,201.51 points or 7.66% to 26,535.70, S&P BSE Power was down by 456.41 points or 6.68% to 6,373.04 and S&P BSE Oil & Gas was down by 1,579.87 points or 5.55% to 26,886.33 were the top losers, while S&P BSE TECK was up by 133.46 points or 0.79% to 17,026.17 and S&P BSE Information Technology was up by 182.52 points or 0.48% to 37,926.76 were the only gainers on the BSE.

NSE movement for the week

The Nifty slipped 470.20 points or 2.09% to 22,023.35. On the National Stock Exchange (NSE), Bank Nifty was down by 1241.70 points or 2.60% to 46,594.10, Nifty Mid Cap 100 was down 2280.55 points or 4.66% to 46,685.60 and Nifty Next 50 lost 2265.10 points or 3.75% to 58,058.80, while Nifty IT was up by 400.80 points or 1.08% to 37,500.70.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net buyers in equity segment in the week, with gross purchases of Rs 120,799.40 crore and gross sales of Rs 91,912.77 crore, leading to a net inflow of Rs 28,886.63 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 14,666.38 crore against gross sales of Rs 7,599.97 crore, resulting in a net inflow of Rs 7,066.41 crore. In hybrid segment, FIIs stood as net buyers, with gross purchases of Rs 379.55 crore and gross sales of Rs 287.89 crore, leading to a net inflow of Rs 91.66 crore.

Industry and Economy

With strong domestic consumption and capital expenditure, Moody’s Ratings in its latest report has raised India’s Gross Domestic Product (GDP) growth forecast for FY24 to around 8 per cent from 6.6 per cent. The estimate comes a day after RBI Governor Shaktikanta Das said the economic growth in the current financial year could be close to 8 per cent in view of the third quarter GDP data released by the government. The latest estimate of Moody’s is about 140 basis points higher than the earlier projection of 6.6 per cent made in November 2023. In a report, it said ‘We expect India to be the fastest-growing economy among major G20 countries, with its real GDP growth to accelerate to around 8 per cent in the fiscal year ending March 2024 (fiscal 2023-24) from 7 per cent in fiscal 2022-23’.

Outlook for the coming week

In the passing week, Indian equity markets ended with hefty losses amid weak Index of Industrial Production (IIP) data. Growth in factory output, based on the IIP, slowed to 3.8 per cent in January 2024, mainly due to poor performance of manufacturing, mining and power sectors. 

In the coming week, traders will be looking for the HSBC Composite PMI Flash, HSBC Manufacturing PMI Flash and HSBC Services PMI Flash data, which are going to be released on March 21. Foreign Exchange Reserves, Deposit Growth and Bank Loan Growth data to be out on March 22. Foreign Exchange Reserves in India increased to $625630 million in March 1 from $619070 million in the previous week.

On the global front from the US, traders will first be eyeing NAHB Housing Market Index on March 18 followed by Building Permits Prel, Redbook on March 19, Fed Interest Rate Decision, FOMC Economic Projections on March 20, Fed Press Conference, Initial Jobless Claims, Philadelphia Fed Manufacturing Index, S&P Global Composite PMI Flash, S&P Global Manufacturing PMI Flash, S&P Global Services PMI Flash on March 21 and Baker Hughes Oil Rig Count on March 22.

Top Gainers

  • Tata Consultancy Services (TCS) up by 2.69% was the top gainer on Nifty for the week - TCS traded with traction after it signed an agreement with Nuuday, Denmark’s leading digital connectivity and communications provider, to implement a complex cloud transformation. As part of this multi-million-dollar deal, TCS will take full responsibility for Nuuday’s IT infrastructure and migrate it to the TCS hybrid cloud, paving the way for future transformations. TCS will help Nuuday realize its objective of becoming a ‘truly digital service provider’ with a modern and secure infrastructure.
  • Britannia Industries up by 1.74% was another top gainer on Nifty for the week - Britannia Industries traded higher on private report that the company is contemplating potential joint ventures (JVs) to venture into lucrative segments such as chocolates, fresh dairy, and salty snacks. However, gains remain capped on report that Fast-Moving Consumer Goods (FMCG) sector has highlighted the muted demand setting prevailing in Q4FY24.
Top Losers

  • NTPC down by 10.19% was the top loser of the week on Nifty - NTPC witnessed profit booking as stock hit its 52-week high recently. The company has signed a non-binding Memorandum of Understanding (MoU) with Rajasthan Rajya Vidyut Utpadan Nigam. The MoU between NTPC and RVUNL is to explore opportunities for adding supercritical units to the existing Chhabra Thermal Power Plant. Meanwhile, NTPC Group has crossed the mark of 400 BU of total electricity generation in the current financial year, on March 13, 2024. During FY 2022-23, the company had generated 399.3 BU.
  • Tata Steel down by 9.89% was another top loser of the week on Nifty - Select metal stocks were under pressure with report that after three back-to-back years of double-digit growth, domestic steel consumption growth to moderate to 7-8 per cent in the next financial year (FY25). The rating agency - ICRA expects the operating environment to remain challenging in the next financial year as the industry navigates through a period of softness in steel prices, elevated input costs, a temporary deceleration in domestic demand growth close to the elections, and a weak external environment.
Technical viewpoints

During the week, CNX Nifty touched the highest level of 22,526.60 on March 11 and lowest level of 21,905.65 on March 13. On the last trading day, the Nifty closed at 22,023.35 with weekly loss of 470.20 points or 2.09 percent. For the coming week, 21,777.13 followed by 21,530.92 are likely to be good support levels for the Nifty, while the index may face resistance at 22,398.08 and further at 22,772.82 levels.

US Market

The U.S. markets ended higher during the passing week as consumer prices in the U.S. increased in line with street estimates in the month of February, according to a report released by the Labor Department. The Labor Department said its consumer price index climbed by 0.4 percent in February after rising by 0.3 percent in January. The advance matched expectations. The report also said the annual rate of consumer price growth ticked up to 3.2 percent in February from 3.1 percent in January. The year-over-year growth was expected to be unchanged. The monthly increase by consumer prices partly reflected a substantial rebound by energy prices, which surged by 2.3 percent in February after slumping by 0.9 percent in January amid a spike in gasoline prices. Excluding food and energy prices, core consumer prices rose by 0.4 percent in February, matching the increase seen in January. Street had expected core prices to rise by 0.3 percent.

Meanwhile, the annual rate of core consumer price growth slowed to 3.8 percent in February from 3.9 percent in January. The pace of growth was expected to decelerate to 3.7 percent. The monthly core price growth reflected a continued increase in prices for shelter as well as higher prices for airline fares, motor vehicle insurance, apparel and recreation. On the other hand, prices for personal care and household furnishings and operations were among those that decreased over the month. Traders were getting some encouragement as the Labor Department released a report showing first-time claims for U.S. unemployment benefits edged slightly lower in the week ended February 9th. The report said initial jobless claims slipped to 209,000, a decrease of 1,000 from the previous week's revised level of 210,000. Street had expected jobless claims to inch up to 218,000 from the 217,000 originally reported for the previous week. The Labor Department said the less volatile four-week moving average also dipped to 208,000, a decrease of 500 from the previous week's revised average of 208,500.

However, some traders were cautious after a report released by the Labor Department showed producer prices in the U.S. increased by much more than expected in the month of February. The Labor Department said its producer price index for final demand climbed by 0.6 percent in February after rising by 0.3 percent in January. Street had expected producer prices to rise by another 0.3 percent. The report also said the annual rate of producer price growth accelerated to 1.6 percent in February from a revised 1.0 percent in January. Street had expected the year-over-year price growth to rise to 1.1 percent from the 0.9 percent originally reported for the previous month. The stronger than expected monthly producer price growth partly reflected a substantial rebound by energy prices, which spiked by 4.4 percent in February after slumping by 1.1 percent in January. Prices for food also jumped by 1.0 percent in February following a 0.3 percent decrease in the previous month.

European Market

European markets ended passing week on a higher note, reacting positively to data showing an improvement in U.K.'s economic growth, and a slew of encouraging earnings updates. The start of the week was muted, as Spain's retail sales growth slowed for the second straight month in January. The data from the statistical office INE showed that retail sales expanded only 0.3 percent year-on-year in January, following a 2.7 percent rise in December. On an unadjusted basis, retail sales growth accelerated to 2.1 percent from 1.1 percent a month ago. The Data showed that retail sales posted a 0.5 percent monthly drop after a 1.1 percent decrease. Food sales dropped 1.1 percent and non-food sales were down 1.2 percent. Also, Eurozone industrial production declined for the first time in three months in January largely reflecting the weakness in capital goods output. The data from Eurostat showed that industrial output fell 3.2 percent on a monthly basis, reversing December's 1.6 percent increase. 

However, markets gained traction towards end of the week, after the UK economy rebounded in January driven by services and construction output. The Office for National Statistics reported that gross domestic product posted an expansion of 0.2 percent in January, reversing a 0.1 percent fall in December. The rate came in line with expectations. The service sector was the largest contributor to the expansion. Services output rebounded 0.2 percent after a 0.1 percent fall. Construction output also recovered in January, up 1.1 percent, reversing a drop of 0.5 percent. Further, the Organisation for Economic Co-operation and Development said the Swiss economic growth is set to pick up next year but cited geopolitical tensions, shifts in trade patterns and tight financing conditions as challenges to growth. In the OECD Economic Survey of Switzerland, the agency said the economy will grow moderately by 0.9 percent this year before picking up to 1.4 percent in 2025.

On the inflation front, Germany's wholesale prices continued to decline in February. The data from Destatis showed that wholesale prices dropped 3.0 percent on a yearly basis, sharper than the 2.7 percent fall in January. Wholesale prices have been falling since April 2023. Month-on-month, wholesale prices edged down 0.1 percent, offsetting the 0.1 percent rise in January. Prices were expected to grow 0.2 percent. Data showed that the annual fall in petroleum prices had the greatest impact on overall wholesale prices. Petroleum product prices decreased 3.5 percent annually but grew 0.3 percent on month. Further, Norway's consumer price inflation eased for the second straight month in February to the lowest level in four months, while producer prices continued to decline sharply. The consumer price index rose 4.5 percent year-over-year in February, slower than the 4.7 percent gain in the previous month. The annual price growth for food and non-alcoholic beverages eased to 6.3 percent from 8.7 percent in January. Charges for communications also moderated to 1.4 percent from 1.8 percent. 

Asian Market

Asian markets ended mostly in green during the week even as renewed concerns about the US Fed further postponing its first interest rate cut to after June, following the release of hotter-than-expected producer price inflation data for February. Investors also looked ahead to next week's BOJ policy meeting for any possible changes in monetary policy. Seoul stocks ended higher after the jobless rate in the country fell to 2.6 percent in February from 3 percent in the prior month.

Japanese Nikkei fell by over two percent while the yen strengthened as the country's largest employers announced record pay increases, stoking speculation the Bank of Japan could end its negative interest rate policy at its meeting next week. In addition, Finance Minister Shunichi Suzuki said the Japanese economy hasn't completely overcome deflation yet.

Chinese Shanghai too ended marginally lower on persistent fears over weak demand in the country. Some concern also came with a report stating that China's new home prices dropped for an eighth straight month in February, suggesting the fragile property market is struggling to find a bottom despite a slew of measures to shore up the sector. New home prices fell 0.3% month-on-month, in line with January's decline. However, losses remained capped after data showed consumer prices in China rose for the first time since August, that eased worries about deflation in the world's second largest economy. Meanwhile, the country's central bank left its key policy rate unchanged and withdrew cash from a medium-term policy loan operation for the first time in 16 months.
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