Week Ahead: Back to fundamentals and macro data

Buoyancy from Q3 results to sustain the market cheer.

With third quarter results behind us, the stock markets will return its gaze to fundamentals and economic macro data. Of course,  the buoyant corporate earnings and lower-than-expected inflation data will continue to feed a positive sentiment. In fact, Nifty has already crossed 22k mark and is now approaching its all-time high of 22126 levels. We expect it to surpass these levels and touch new highs during this week.

Investors would also take cues from the minutes of the Federal Open Market Committee meeting this week, along with US existing home sales data, Euro inflation number and India Services PMI data.

Last week, Nifty bounced back more than 500 points from a low of 21,530 to close at 22,040 with gains of 1.2%. Broader market however saw a mixed performance with Midcap100 up 0.5% while Smallcap100 was down 0.5%. Majority of the sectors gained with auto being the biggest gainer – up 4% followed by PSU Banks (3%) and IT (2%). Metals, media and FMCG were the losers for the week.

Resilient domestic cues helped markets bounce back. The Q3FY24 corporate earnings ended on a buoyant note and have exceeded our expectations, with the BFSI and automobile sectors driving the overall performance. The metals and oil and gas sectors reported healthy earnings growth, providing further support to the overall earnings. Nifty delivered a strong beat with a 17% year-on-year (YoY) PAT growth as against estimated 11% rise. We now expect the Nifty EPS to grow ~21%/17% YoY in FY24/FY25.

Equity markets were anxious in the run-up to the state elections in December 2023 and their potential bearing for the Lok Sabha elections in 2024. In this context, two important pre-poll surveys by India Today and Times Now predict a more than comfortable majority (272+ seats) for the incumbent Bharatiya Janata Party (BJP)-led NDA, giving Prime Minister Narendra Modi a third consecutive term. The government’s confidence of retaining power in the forthcoming elections is also reflected in the FY25 vote-on-account Budget, when it refrained from giving any tax cuts/freebies (3% revenue expenditure growth YoY budgeted for FY25) while aiming for better-than-expected fiscal consolidation with a fiscal deficit target of 5.1% for FY25 estimate vs. 5.8% for FY24 revised estimate.

India’s CPI inflation came in at a three-month low of 5.1% YoY in January 2024 against 5.7% in December 2023. Overall inflation came in line with market expectations, with better-than-expected industrial output growth. We see inflation hovering around the 5.0-5.5% level, led by food in the first half of 2024 calendar year, before easing in the third quarter towards 4.0% and rebounding to 4.5-5.0% in the next two quarters. Growth in manufacturing activity accelerated to 3.9% in December 2023 vs. 1.2% growth in November 2023 and 3.6% in December 2022.

 PSU stocks resumed their ongoing rally after a short pause. Oil and gas posted solid gain due to impressive quarterly results, improved gross refining margin and strong growth expected in India’s oil consumption going forward.

On the global front, US inflation remained sticky at 3.1% in January. This led to a spike in the US dollar and diminished hope of early interest rate cuts by the US Federal Reserve. The US retail sales too fell more than expected in January, pulled down by declines in receipts at auto dealerships and gasoline service stations. However despite mixed global cues, investors overlooked these concerns and focused on earnings release. US markets touched new highs and now would be closely monitoring the Fed meeting minutes.

(The writer is Head - Retail Research, Motilal Oswal Financial Services Ltd)