Week Ahead in the Markets : 11 Dec 2023 to 15 Dec 2023
In the week concluding on December 8, the stock markets showcased a remarkable performance, marking the most substantial weekly gain in the past 16 months. Achieving a significant milestone, the indices surged to the long-awaited 21,000 mark for the first time. This surge was propelled by several positive factors, including
- favorable outcomes in state elections,
- indicating increased government investment in infrastructure.
Q2FY24 witnessed better-than-expected economic growth, leading to a positive impact on market sentiment. The RBI’s upward revision of full-year GDP growth estimates, alongside maintaining the status quo on policy rates and inflation forecasts, further contributed to the upbeat market atmosphere. Despite concerns about inflation, the anticipation of concluding the rate hike cycle, coupled with stable oil prices, added to the positive market sentiment.
Looking ahead to the coming week, following a consistent upward trend over the past six weeks, the market is poised for a rangebound trade and consolidation. The focus will be on
- The outcome of the Fed meeting and Powell’s commentary, particularly in light of the recent favorable jobs data and a decrease in the unemployment rate for November.
- Additionally, attention will be on the monthly inflation data from both the US and India.
In the previous week, both the benchmark indices and Bank Nifty achieved fresh record closing highs. The Nifty50 closed at 20,969, marking a substantial 3.46 percent increase or 702 points, the most significant weekly gain since July 2022. Simultaneously, the BSE Sensex rallied by 3.47 percent or 2,344 points, reaching 69,826.
The market sectors driving this surge included banking, financial services, energy, infrastructure, technology, metal, oil & gas, and auto stocks. In contrast, FMCG and pharma stocks experienced downward pressure. The broader markets also witnessed gains, with the Nifty Midcap 100 and Smallcap 100 indices rising by 2.35 percent and 1.16 percent, respectively.
Key Factors to Watch Out for the upcoming week
US Federal Open Market Committee Meeting
In the upcoming week, all eyes will be on the pivotal two-day FOMC meeting and the insights shared by Fed Chair Jerome Powell on December 13. This heightened interest follows the release of impressive job data and a decrease in the unemployment rate in November. The Federal Reserve is actively working towards achieving a soft landing for the economy.
The majority of experts anticipate that the fed funds rate will remain steady within the range of 5.25-5.5 percent. However, they are keenly observing for any signals regarding the potential initiation of a rate cut cycle. This anticipation arises from the ongoing trend of declining inflation, although it still hovers above the Fed’s 2 percent target. Some experts even speculate that the commencement of a rate cut cycle might occur by the close of the first quarter or the beginning of the second quarter in 2024.
Simultaneously, the FOMC will unveil its insights into long-term economic growth and interest rate projections.
In the financial landscape, the US dollar index demonstrated an upward trend, climbing from 103.27 to 103.98 week-on-week. Additionally, US 10-year treasury yields experienced a marginal increase from 4.2 percent to 4.23 percent during the same period.
Monitoring US Inflation
Investors will be closely monitoring the release of US inflation figures scheduled a day before the FOMC meeting outcome, specifically on December 12. Expert projections indicate a stabilizing trend in November, with inflation and core inflation expected to hold at 3.2 percent and 4 percent, respectively.
Global Economic Data Insights
Beyond these focal points, the upcoming week will witness crucial interest rate decisions by the European Central Bank and the Bank of England on December 14. Projections suggest that these rates will remain unchanged at 4.5 percent and 5.25 percent, respectively. Additionally, key economies, including the US, Europe, Japan, and the UK, will unveil their manufacturing and services PMI Flash data for December.
Indian CPI Inflation
Returning our focus to India, the Consumer Price Index (CPI) inflation data is set to be unveiled on December 12. Analysts anticipate a rise, projecting it to reach approximately 5.5-6 percent for November. This expected increase is attributed to heightened food inflation, while core inflation is predicted to maintain stability around 4.3 percent in the same month.
Indeed, the Reserve Bank of India (RBI) upheld its annual inflation projection at 5.4 percent for the fiscal year 2023-24. The RBI cited potential risks stemming from food and weather-related factors while concurrently revising its annual growth forecast upward.
Additionally, data on industrial and manufacturing production is scheduled for release on the same day, with expectations from experts indicating growth in October.
Looking ahead, the Wholesale Price Index (WPI) inflation figures are due on December 14. Furthermore, key economic indicators such as bank loan and deposit growth for the fortnight ending December 1, foreign exchange reserves as of the week concluding December 8, and trade balance data for November are set to be disclosed on December 15.
Foreign Investment Impact (FII) Flow
In December, foreign institutional investors (FIIs) made a robust comeback, injecting approximately Rs 10,900 crore into shares within the current month. This follows their substantial investment of over Rs 7,000 crore in the preceding month. The consistent FII inflow has been a pivotal factor propelling the market to achieve new highs. Analysts foresee this trend continuing, driven by the BJP’s success in three key state elections, robust economic growth, declining oil prices, and decreasing yields on the US 10-year treasury.
Conversely, domestic institutional investors (DIIs) played a significant role in supporting the market by purchasing shares worth more than Rs 5,700 crore in the cash market segment.
Market Boost from Oil Price Dip
The market found significant support in the form of falling oil prices, alleviating fiscal concerns and enhancing company earnings through reduced input costs. As a net oil importer, India particularly benefited from this trend.
Brent crude futures, the global oil price benchmark, continued their downward trajectory after breaching the 200-week Exponential Moving Average (EMA) in the previous week. Despite a 3.85 percent correction during the week, settling at $75.84 a barrel, there was notable buying at lower levels. Having corrected by 21.5 percent since September 25 when it stood at $96.55 a barrel, market participants closely monitor oil prices for future market implications.
Active Primary Market and Upcoming IPOs
The primary market is set to regain momentum, with the mainboard segment reentering the scene after a relatively quiet period. Notable IPOs in the coming week include
- Stationary and Art products manufacturer Doms Industries
- Housing finance company India Shelter Finance Corporation
each launching Rs 1,200-crore IPOs during December 13-15.
In the SME segment,
- the Presstonic Engineering IPO will open for subscription during December 11-13,
- S J Logistics from December 12-14.
- Shree OSFM E-Mobility and Siyaram Recycling Industries are set to launch public issues during December 14-18.
- Accent Microcell’s public issue, subscribed 28.77 times on day 1 (December 8), will close on December 12
- Sheetal Universal and Graphisads are scheduled to debut on December 11 and December 13, respectively.
Market Momentum Analysis
The market exhibited robust momentum, with the Nifty50 surpassing the 21,000 mark last week. Overall, experts anticipate a positive trend, but considering the recent one-way rally, they foresee a consolidation phase in the coming weeks before potentially resuming an upward movement toward 21,500-22,000 levels. Critical support is anticipated at 20,850, with 20,600-20,500 identified as crucial support levels.
Options and Futures Outlook
Options data suggests that 21,000 is a crucial level to monitor, as a decisive closing above it could propel the Nifty towards 21,500. Immediate support appears to be at 20,800, with a critical support level at 20,500. The maximum weekly Call open interest is observed at the 21,000 strike, followed by 21,500 and 22,000 strikes.
On the Put side, maximum open interest is at the 20,900 strike, followed by 20,000 and 20,800 strikes. Rupak De, senior technical analyst at LKP Securities, suggests that a resurgence of the current uptrend may be seen above 21,000, with potential movement towards 21,550. However, increased profit booking might occur below 20,900 and 20,800 levels.