Story of the Day
Focus on the Fed:
The market’s attention is firmly on the upcoming Federal Reserve events. Scheduled for Wednesday evening, the CPI (Consumer Price Index) release and the FOMC (Federal Open Market Committee) meeting rarely coincide, making this a particularly notable event. The Fed’s decision on interest rates will depend heavily on the inflation data. If the CPI indicates higher-than-expected inflation, the Fed might adopt a more hawkish stance. Conversely, a lower-than-expected CPI could lead to a dovish outlook.
Interest Rate Expectations:
At the start of the year, expectations were for 5-7 interest rate cuts in 2024. However, stubborn inflation has shifted this view, and now there might be only one rate cut, potentially around the US elections.
US Bond Yields:
The US 10-year bond yield has increased from around 3.8% to 4.6-4.7%, reflecting market expectations of sustained inflation. Historically, from 1982 to 2020, bond yields trended downward, making bonds a safe bet. This trend reversed post-COVID, challenging the traditional 60-40 portfolio strategy (60% equities, 40% bonds).
Market Overview
Nifty is up quarter percent today.
Nifty Next 50
Nifty junior, 0.75% still within this exit poll day range.
Nifty Mid and Small Cap
The mid cap index has been on a steady upward trajectory, adding nearly 1% and surpassing the highs made during the exit polls. This indicates robust performance in the mid-cap segment, with consistent gains observed each day.
Small Cap Index:
Similarly, the small cap index has gained around 1%. After a period of stagnation, where large caps were the primary movers, there has been a noticeable shift in recent sessions. The focus has shifted back to small caps, suggesting renewed investor interest and confidence in smaller companies. This shift highlights the dynamic nature of market movements, with different segments taking turns in leading the charge.
In summary, while large caps had their moment of momentum, mid and small caps are now stepping into the spotlight, driving market gains. This rotation is a healthy sign of market breadth and investor diversification across different company sizes.
Nifty Bank Overview
The Nifty Bank Index has been quite flat recently, struggling to gain significant upward momentum.
FIIS and DIIS
Foreign Institutional Investors (FIIs) were essentially flat, with a net outflow of ₹111 crores. This small amount suggests that FII activity had little impact on the market. On the other hand, Domestic Institutional Investors (DIIs) showed substantial buying activity, with net inflows of ₹3,193 crores. This significant inflow supports the market and indicates strong domestic confidence.
A mutual fund manager highlighted the constant daily inflow of $150 million into domestic funds. Despite the challenge of high valuations or less favorable stocks, mutual funds are compelled to invest most of these inflows, typically at least 85%, due to regulatory requirements. This is a key dynamic limiting mutual funds, unlike portfolio managers (PMs) or those managing small cases who have more flexibility to move to defensive stocks or cash in a falling market. This mandatory investment can lead to less optimal allocation during market downturns, showcasing a limitation of the mutual fund investment format.
Nifty Heatmap
Today’s heat map revealed a mixed performance with some notable gains, particularly in Power Grid and Coal India. Among the day’s gainers were Hero Motor Corp, SBI Life Insurance, and IndusInd Bank, though there wasn’t a significant consensus move across any specific sector in the Nifty Next 50. However, several sectors did exhibit notable strength. Cement and steel sectors performed well, continuing their recent trends of robustness. Public sector enterprise stocks maintained their upward trajectory, indicating sustained investor confidence. In the capital goods sector, Siemens and ABB stood out with strong performances, and some retail-focused stocks also showed positive movement.
There is some market speculation about Jio Finance and Zomato potentially being included in the Nifty index, which likely contributed to their recent performance. Other notable gainers included Bank of Baroda, Chola Finance, and GAIL. Despite the overall positive trends in certain sectors, some stocks, such as Adani Green, Marico, and Pidilite, ended the day in the red.
Sectoral Overview
The sectoral trends remained consistent with previous patterns. Energy, PSU banks, and public sector enterprises continued their upward trajectory, reflecting the government’s sustained policy and allocation strategies. This alignment with government policies seems to have bolstered market confidence in these sectors, driving their performance. Infrastructure, energy, and public sector enterprises have been the primary beneficiaries of this trend. The only outlier today was the real estate sector, which remained flat and did not follow the upward movement seen in other sectors.
Sectors of the Day
Nifty FMCG Index
On the other hand, the auto and FMCG sectors saw a decline, with consumption stocks remaining flat overall. Despite this, most sectors experienced a reasonably good day. The FMCG index is facing resistance at its January 2024 level, struggling to break through this threshold, resulting in a stagnation.
Nifty PSE Index
Public sector enterprise stocks are witnessing a recovery, though they have not yet surpassed their all-time high.
Stocks of the Day
Dredging Corp
Among individual stocks, Dredging Corporation stands out as a notable example. Despite trading within a broad range of 1200 to 200 over the past 21 years, it has experienced several significant rallies. This exemplifies the potential for making strategic gains by timing these rallies, even if the stock’s long-term movement appears stagnant. The key is to capitalize on these periodic movements and reallocate capital to more opportunistic investments once a rally subsides.
Gold Chart
Gold remains flat, currently plateauing at 71,500 with little significant movement. However, with the upcoming release of the CPI data and the FOMC meeting later tonight, gold is expected to experience significant volatility. The India VIX, which measures market volatility, has significantly decreased from 31-32 levels observed on election result day to 14, indicating a return to the volatility levels seen at the beginning of the year. This decrease in volatility is likely to disappoint options sellers, as the premiums they could collect would have collapsed. Nonetheless, the return to a lower VIX suggests a resumption of typical market conditions.
