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Fed’s hawkish stance drags key gauges lower for the week
Sep-22-2023

It turned out to be gloomy week of trade for Indian equity benchmarks with frontline gauges ending the holiday shortened week with a cut of over one and a half percentage points. Traders were worried after US Fed signaled on keeping interest rates at an elevated level through 2024 after one more rate hike this year, despite the decision to hold interest rates steady this month. Local indices started the week on a pessimistic note as traders were concerned after India’s merchandise trade deficit widened to a 10-month high of $24.16 billion in August. India’s exports declined by 6.86 per cent to $34.48 billion in August this year as against $37.02 billion in the same month last year. Imports too declined by 5.23 per cent to $58.64 billion as against $61.88 billion recorded in August 2022.  Some concern also came as latest data by the Reserve Bank of India (RBI) showed India’s foreign exchange reserve declined by $5 billion to $594 billion in the previous week on the back of a fall in foreign currency assets. Markets continued southward journey throughout the week and never witnessed any recovery. Street overlooked reports that Fitch Ratings upwardly revised the global growth forecast for 2023 by 10 basis points to 2.5 per cent, reflecting surprising resilience so far this year in the US, Japan, and emerging markets excluding China. Meanwhile, in order to encourage greater utilization of the PM GatiShakti National Master Plan (NMP) amongst the States/UTs, the Logistics Division, Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry is organizing weekly meetings. Sentiments remain dampened after the Reserve Bank of India (RBI) in its monthly bulletin said that a shift by state governments to the Old Pension Scheme (OPS) will be fiscally unsustainable and a major step backwards. Selling continued during the week as the Asian Development Bank (ADB) marginally lowered India's growth forecast to 6.3 per cent for the current financial year from its earlier projection of 6.4 per cent on account of slowing exports and the likely impact of erratic rainfall on agriculture output. Foreign fund outflows also dented investors’ sentiments. Investors also got cautious after the All-India Consumer Price Index Number for Agricultural Labourers and Rural Labourers (Base: 1986-87=100) for the month of August, 2023 increased by 9 points and 8 points respectively to stand at 1224 and 1234 points respectively. Adding more worries, another private report stated that with crude oil hovering near $94 a barrel, India, the world’s third biggest importer, is confronted with the return of a long-feared spectre: the twin deficit challenge. Selling on final day of the week forced markets to extend weekly losses as escalating diplomatic tensions between India and Canada impacted sentiments in the markets.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 1829.48 points or 2.70% to 66,009.15 during the week ended September 22, 2023. The BSE Midcap index losses 556.61 points or 1.71% to 31,948.76, while Smallcap index slipped 771.08 points or 2.04% to 37,057.48. On the sectoral front, S&P BSE Realty was down by 201.03 points or 4.28% to 4,491.99, S&P BSE Finance was down by 329.59 points or 3.33% to 9,578.17, S&P BSE Metal was down by 764.22 points or 3.25% to 22,715.96, S&P BSE Healthcare was down by 918.73 points or 3.20% to 27,763.92 and S&P BSE BANKEX was down by 1,643.46 points or 3.17% to 50,201.45 were the top losers, while S&P BSE PSU was up by 70.94 points or 0.57% to 12,449.37 and S&P BSE Power was up by 2.57 points or 0.06% to 4,626.43 were the only gainers on the BSE.

NSE movement for the week

The Nifty slipped 518.10 points or 2.57% to 19,674.25. On the National Stock Exchange (NSE), Bank Nifty was down by 1619.45 points or 3.50% to 44,612.05, Nifty IT was down by 448.75 points or 1.35% to 32,906.30, Nifty Mid Cap 100 decreased 690.75 points or 1.69% to 40,139.15 and Nifty Next 50 decreased 875.85 points or 1.90% to 45,176.00.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 66,786.24 crore and gross sales of Rs 72,182.24 crore, leading to a net outflow of Rs 5,396.00 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 2,634.58 crore against gross sales of Rs 4,362.02 crore, resulting in a net outflow of Rs 1,727.44 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 264.49 crore and gross sales of Rs 394.38 crore, leading to a net outflow of Rs 129.89 crore.

Industry and Economy

With the support of pace of financial sector development and demographic advantage, the Reserve Bank of India (RBI) Deputy Governor Michael D Patra has said India will be a $5 trillion economy and the third largest in the world by market exchange rates by 2027. He said it is widely believed that during the next two decades -- if not for longer -- the centre of gravity of the global economy will shift eastward to Asia.  He said the IMF’s Regional Economic Outlook for Asia and the Pacific indicates that this region will contribute about two-thirds of global growth in 2023 itself and India will account for a sixth of world output growth in 2023 and 2024. In terms of market exchange rates, he said India is the fifth-largest economy in the world and the third-largest economy on the basis of purchasing power parity. He added a key driver in this transformation is likely to be the window of a demographic dividend that opened up in 2018 and will probably last till the 2040s, going by fertility and mortality rates.

Outlook for the coming week

Local equity markets witnessed significant fall in the passing week amid global uncertainty. US Fed signaled on keeping interest rates at an elevated level through 2024 after one more rate hike this year, despite the decision to hold interest rates steady this month. 

The next week is likely to see some volatility with scheduled F&O series expiry on September 28 and traders balancing their positions going ahead for the next series. On the economy front, traders will be eyeing the India's fiscal deficit data, which scheduled to be released on September 29. India's fiscal deficit increased to Rs 6.06 trillion in April-July 2023-24, compared to Rs 3.41 trillion in the same month of the previous fiscal year. On the same day, investors will be eyeing the data of India Infrastructure Output, Foreign Exchange Reserves and current account deficit. 

On the global front, investors would be eyeing few economic data from world’s largest economy, United States (US), starting with Chicago Fed National Activity Index and Dallas Fed Manufacturing Index on September 25 followed by Redbook, CB Consumer Confidence, New Home Sales, Dallas Fed Services Index, Building Permits Final on September 26, Durable Goods Orders on September 27, Initial Jobless Claims, GDP Growth Rate, Pending Home Sales on September 28 and finally Personal Spending, Personal Income, Goods Trade Balance, Chicago PMI, Michigan Consumer Sentiment, Baker Hughes Oil Rig Count on September 29.

Top Gainers

  • Bajaj Auto up by 3.23% was the top gainer on Nifty for the week - Bajaj Auto gained traction amid reports that the company is planning to launch new models of popular Pulsar and Chetak brand by March next year. Its Managing Director Rajiv Bajaj reportedly said that the company had plans to introduce upgrades to six of the existing Pulsar models, which fall in the mid-segment range, featuring engines ranging from 125cc to 200cc, all set to be rolled out by March next year. Recently, its subsidiary - Bajaj Auto Consumer Finance got certificate of registration from RBI to commence the business of nonbanking financial institution.
  • Mahindra & Mahindra up by 2.63% was another top gainer on Nifty for the week - Mahindra & Mahindra launched the Bolero Neo+ Ambulance. Built to fully comply with AIS:125 (Part 1) norms that govern the Type B Ambulance segment, the Neo + stands out for its superior OEM-level of build quality coupled with a versatility that will appeal to buyers in big cities, smaller towns and upcountry locations. Mahindra has equipped it with a host of practical features aimed at improving patient care and transport efficiency. The Bolero Neo+ Ambulance is priced at Rs 13.99 lakh, with a GeM pricing of Rs 12.31 lakh.
Top Losers

  • HDFC Bank down by 6.89% was the top loser of the week on Nifty - HDFC Bank tumbled as some global brokerage firms downgraded the stock after during its analysts' meeting, HDFC Bank raised concerns about potential short-term challenges following its merger with parent company HDFC. The bank expects adverse effects on net interest margin (NIM), net worth, and asset quality due to this strategic move. One key concern highlighted in the meeting is the possibility of a 25 bps narrowing of NIM. This would result from a combination of factors, including the incremental CRR and excess liquidity. 
  • Ultratech Cement down by 5.76% was another top loser of the week on Nifty - UltraTech Cement witnessed profit booking after it touched 52-week high of Rs 8,750.00 on September 15, 2023. Besides, UltraTech Cement inaugurated its first Center of Excellence (CoE) for Advanced Building Materials and Sustainable Development in Jammu and Kashmir, marking its seventh such centre in Northern India. Meanwhile, The India Cements (ICL) has inked a pact with UltraTech Cement for the sale of land measuring 73.75 acre for Rs 70 crore. The land is located in Vizianagram district of Andhra Pradesh.
Technical viewpoints

During the week, CNX Nifty touched the highest level of 20,195.35 on September 18 and lowest level of 19,657.50 on September 22. On the last trading day, the Nifty closed at 19,674.25 with weekly loss of 518.10 points or 2.57 percent. For the coming week, 19,489.38 followed by 19,304.52 are likely to be good support levels for the Nifty, while the index may face resistance at 20,027.23 and further at 20,380.22 levels.

US Market

The U.S. markets ended lower during the passing week after the Federal Reserve held interest rates steady, but indicated it sees another rate hike this year. The Federal Reserve announced that it has decided to leave interest rates unchanged. The Fed said it decided to maintain the target range for the federal funds rate at 5.25 to 5.50 percent after raising rates by 25 basis points in July. However, the central bank's latest projections suggest Fed officials expect one more rate hike this year, forecasting a median rate of 5.6 percent by the end of 2023. While the forecast for the end of the year was unchanged from June, the latest projections indicate officials expect rates to remain higher for longer than previously anticipated. The forecast for rates at the end of 2024 was raised to 5.1 percent from 4.6 percent in June, while the outlook for rates at the end of 2025 was increased to 3.9 percent from 3.4 percent. It also said job gains have slowed in recent months but remain strong while noting inflation remains elevated.

The Fed reiterated it remains highly attentive to inflation risks and acknowledged additional policy firming may be appropriate to return inflation to 2 percent over time. In determining whether future rate hikes are necessary, the Fed said it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. Further, weakness also prevailed in the markets as the National Association of Realtors (NAR) released a report unexpectedly showing a continued decrease in U.S. existing home sales in the month of August. NAR said existing home sales fell by 0.7 percent to an annual rate of 4.04 million in August after tumbling by 2.2 percent to an annual rate of 4.07 million in July. Street had expected existing home sales to rise to a rate of 4.10 million.

Existing home sales declined for the fourth consecutive month and are down by 15.3 percent compared to the same month a year ago. The report said housing inventory at the end of August totaled 1.10 million units, down 0.9 percent from 1.11 million units in July and down 14.1 percent from 1.28 million units in August 2022. The unsold inventory represents 3.3 months of supply at the current sales rate, unchanged from July but up from 3.2 months a year ago. Meanwhile, a report released by the Conference Board showed its reading on leading U.S. economic indicators fell by slightly more than expected in the month of August. The Conference Board said its leading economic index decreased by 0.4 percent in August after dipping by a revised 0.3 percent in July. Street had expected the leading economic index to fall by 0.3 percent compared to the 0.4 percent drop originally reported for the previous month.

European Market

European markets ended lower for the passing week on fears of elevated global interest rates. Sentiments also remain dampened after the Swiss National Bank held rates unchanged, but warned that more increases may still be needed. Norway's central bank raised its benchmark interest rate by 25 basis points and indicated another rate hike in December to curb inflation. Meanwhile, the Bank of England leaves interest rates unchanged, in a surprise move. On the economy front, French manufacturers’ confidence improved in September after weakening in the previous month, underpinned by a positive development in short-term personal production expectations, monthly data from the statistical office INSEE revealed. The manufacturing sentiment index rose to 99.0 in September from 97.0 in August. Moreover, data from the Office for National Statistics showed UK consumer price inflation unexpectedly slowed in August and factory gate prices declined for the second consecutive month. The consumer price index posted an annual increase of 6.7% in August after rising 6.8% in July. Inflation was expected to rise to 7%. Moreover, this was the weakest inflation since February 2022. On a monthly basis, the CPI was up 0.3%, in contrast to the 0.4% fall in July. Prices were forecast to rebound 0.7% in August.

UK’s FTSE edged lower after data showed U.K. retail sales rose in August on food and non-food store sales. Retail sales posted a monthly growth of 0.4 percent, in contrast to the 1.1 percent decline seen in July. Nonetheless, sales volume was slightly weaker than economists' forecast of 0.5 percent rise. On a yearly basis, the decline in overall retail sales slowed to 1.4 percent from 3.1 percent in July. Elsewhere, survey results from the market research group GfK showed that British consumer confidence hit the highest since January 2022. The corresponding index improved to -21 in September from -25 in August. Meanwhile, the flash UK flash composite purchasing managers' index fell to a 32-month low of 46.8 points in September while the latest readings on U.K. retail sales and consumer confidence painted a positive picture of the economy.

France's CAC edged lower amid growth concerns after a monthly survey showed the country's dominant services sector contracted at a faster pace in September. The HCOB flash purchasing managers index (PMI) for the services sector, compiled by S&P Global, hit a 34-month low of 43.9 points in September while the manufacturing PMI came in at 43.6 points. Moreover, Germany DAX fell during the passing week after report that business activity across the country declined for the third month in a row in September amid a sustained decline in demand for goods and services. The HCOB Composite PMI, compiled by S&P Global, rose to 46.2 in September from August's 39-month low of 44.6, but came in below forecasts for a score of 47.2. Services activity decreased fractionally, while manufacturing PMI increased slightly but remained deep in contraction territory, the survey showed. 

Asian Market

Asian markets ended the passing week in red terrain amid renewed concerns about the outlook for interest rates after the US Fed signaled on keeping interest rates at an elevated level through 2024 after one more rate hike this year, despite the decision to hold interest rates steady this month. Higher U.S. Treasury yields contributed to the dollar's strength and kept gold prices under pressure in Asian trading.

Chinese stocks ended notably lower amid persisting concerns about the economy. Sentiments also remain dampened after a slump in China's property sector worsened in August, with deepening falls in new home prices, property investment and sales, despite a recent flurry of support measures, adding pressure to the world’s second-largest economy. New home prices fell at the fastest pace in 10 months in August, down 0.3% month-on-month after a 0.2% decline in July, according to Reuters calculations based on National Bureau of Statistics (NBS) data. Prices were down 0.1% from a year earlier, after a 0.1% decline in July.

Japanese Nikkei edged lower by around three percent, as traders awaiting the Bank of Japan’s decision on interest rates after the BoJ wraps up its monetary policy meeting. The BoJ is widely expected to keep its benchmark lending rate unchanged. On the economic front, the country’s exports fell 0.8% last month from a year earlier, with steep declines in shipments to China and the rest of Asia, its largest regional market. Imports sank nearly 18%. That left a trade deficit of 930.5 billion yen ($6.3 billion) in August, for the second straight month of red ink. Exports to Asian markets fell 8.8%, while imports dropped about 13%. A large share of that was an 11% drop in the value of shipments to China, whose economy has slowed in recent months as a hoped-for rebound from disruptions of the COVID-19 pandemic fizzled.
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