Sensex ends week with modest gains to record high; Nifty’s race to 22,000 ‘inevitable’ next week

During the week, Nifty IT emerged to be the star performer, surging over 4 percent led by HCL Technologies, Infosys, TCS, and Tech Mahindra

Indian markets saw a modest up move this week with benchmark indices NSE Nifty 50 and BSE Sensex ending with up to 0.7 percent gains, respectively, leading to new all-time highs.

Though the market had started the week on a muted note weighed by weak global cues, it recovered strongly to climb record highs as investors entered the December quarter (Q3FY24) earnings season. Going forward, analysts remain bullish on overall breadth but suggest investors exercise caution as Q3 results could trigger volatile whips.

"The 22,000-mark is definitely inevitable but now we are eyeing Nifty to breach past 22,150 levels in a week," said Ajit Mishra, Senior Vice President - Technical Research at Religare Broking. Among the sectors, he suggested to watch out IT index after Infosys and Tata Consultancy Services (TCS) Q3 results set a strong tone and private banking names as it prepares to deliver December quarter results.

During the week, Nifty IT emerged to be the star performer, surging over 4 percent led by HCL Technologies, Infosys, TCS and Tech Mahindra. Tech giants TCS and Infosy's Q3 performance have set a strong tone for technology names as it was above Street estimates.

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"Q3 is usually a seasonally weak quarter for the IT sector. But Infosys and TCS delivered Q3 results above what Street was predicting. Though higher furloughs and currency depreciation tailwinds were already major drags for the sector improvement in attrition and utilisation levels surprised market participants. Going ahead, we believe that the US Federal Reserve's rate action cycle will help build further momentum and help churn better demand. We suggest investors increase their allocation in tech names from FY25 perspective," told Aishvarya Dadheech, Founder and CIO, Fident Asset Management to Moneycontrol.

Joining the IT index, the Nifty realty and auto indices also fared well during this week, gaining over 4 percent and 1 percent, respectively. On the contrary, the Nifty FMCG index was the biggest loser this week as it declined over 2 percent as investors anticipate subdued Q3 results.

Kunal Vora, Head - India Equity Research of BNP Paribas projected sales growth to moderate for the consumer staple basket in Q3FY24 as the rural segment continued to remain a pain point. "We believe price hike benefits for FMCG will continue to fade as volumes do not show any signs of recovery. We maintain a 'negative' stance on the sector but reiterate our pecking order," he added.

Meanwhile, broader indices continued to shine during the week, with Nifty Smallcap 100 index surging 0.7 percent to outperform Nifty Midcap 100 index that gained 0.2 percent, suggested data. However, market observers continue to flag off these segments as 'bubble zones' due to stretched valuations.

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Challenging this stupendous market rally could be a delay in rate cuts, said analysts in consensus. A stick US inflation data in December coupled with strong US jobs report could spell trouble, pushing back possibility of easy monetary policy scenario. Another major drag could be rising US fiscal deficit, said analysts.

"US fiscal deficit has increased to $2 trillion in FY23 from $1 trillion in FY22. And, now the first 3 months of FY24, the first deficit is at 8-9 percent of GDP. Though this is not reflected in bond yields yet as major funding of deficit bills is being done by short-term securities but once government moves to longer-term securities, it could reverse 10-year bond yields back to 5 percent-mark. This could be scary for markets as the cost of capital would rise for the rest of the world," told Neelkanth Mishra, Chief Economist at Axis Capital to Moneycontrol.

That said, after a sharp up move seen this week, some of the key triggers to guide markets next week would be India's wholesale price inflation (WPI) data and Q3 results.

Major banking names like HDFC Bank, IndusInd Bank, Kotak Mahindra Bank, and ICICI Bank are scheduled to announce December quarter results starting next week. Analysts expect lenders to report a decent Q3 but rising cost of funds or borrowing costs may trample their margins.

Technically, the Bank Nifty index would need a decisive breach above the 48,000 and 48,200 zones decisively for confirmation of the further fresh upward move, said Vaishali Parekh, Vice President - Technical Research at Prabhudas Lilladher.

Overall, Kunal Shah, Senior Technical & Derivative Analyst, LKP Securities suggested traders consider buying opportunities on any dips. “The momentum indicator RSI has also provided a buy crossover, further confirming the bullish sentiment in the market,” he added.