Lately, palm oil prices have shot up, thanks to supply constraints. Last week, Marico released a business update, warning investors of a weak upcoming 3Q. A 20-30% surge in palm oil prices is expected to impact Marico’s soap segment, which makes up for a third of its business.
The update by Marico dragged several FMCG stocks lower by 5-10% on that day. However, most of these stocks recouped losses during the week, and the sectoral index ended the week lower by just 1.5%.
A similar buying on dips has been seen across the markets - exactly in line with our previous weekly note, where we highlighted the market’s ‘buy on dips zone’. Through the week, most dips were bought into.
This trend was the most apparent on Friday, December 13, 2024 - when the markets recovered from its deep red, and ended the day in the green. Friday the 13th didn’t turn out to be all that disastrous after all!
Support from Macro Data
The buying on dips wasn’t just a bout of optimism this time around. The market had several reasons to find support including:
Outcome of the RBI’s MPC from the previous week, which despite cutting on GDP forecasts and raising inflation estimates did ease up on the CRR by 50 bps, freeing up some liquidity
CPI inflation for November 2024 came in at 5.5%, versus 6.2% in the previous month, driven by some easing in food inflation, which comes as a major relief
The IIP index, which measures India’s industrial output rose by 3.5% in October 2024, versus 3.1% in the previous month, indicating some uptick
All these factors boosted market sentiment. However, a mixed trend in Foreign Institutional Investor activity and profit-booking in global markets capped the upside. Eventually, the Nifty and Sensex settled at 24,768 and 82,133, respectively.
Dips Being Bought in Consumer Stocks
On the sectoral front, a mixed trend was observed, with IT and Real Estate emerging as the top gainers. FMCG was amongst the top losers, thanks to the Marico-shocker. However, several investors saw a buying opportunity here.
When good quality companies, with strong management teams, robust balance sheets, good cash generation, a debt-free status and high pedigree are available for corrected valuations, there are several to jump to ‘buy the dips’.
Anyway, the cost pressures faced by FMCG companies are transient in nature, and are expected to impact business in the short term only. Moreover, several companies like PepsiCo have been seen moving away from palm oil and towards healthier options, courtesy woke consumerism.
Guess, those making chips are also worth buying on these dips!
Indices | Change (%) |
Nifty IT | 2.86 |
Nifty Select Midcap | 1.35 |
Nifty Realty | 1.04 |
Nifty Financial Services | 0.72 |
Nifty Metal | 0.45 |
Nifty Bank | 0.14 |
Nifty Auto | -0.78 |
Nifty Pharma | -1.24 |
Nifty FMCG | -1.52 |
Nifty Energy | -1.71 |
Nifty PSU Bank | -1.88 |
Nifty Media | -5.96 |
Weekly Top Gainers (Nifty 500) | Weekly Gain (%) |
Varroc Engineering | 15.75 |
Jupitor Wagons | 12.66 |
Chalet Hotels | 12.20 |
ITI | 11.67 |
Raymond | 11.46 |
Weekly Top Losers (Nifty 500) | Weekly Loss (%) |
Saphhire Foods | -10.82 |
Godrej Consumer Products | -10.04 |
National Aluminium | -8.78 |
Jubilant Pharmova | -8.17 |
Emami | -7.85 |
What to Expect in the Market Going Ahead?
Looking ahead to the coming week, participants will closely monitor the HSBC Composite PMI, HSBC Manufacturing PMI, and HSBC Services PMI. However, the key focus will be on the US Federal Reserve meeting, where a 25 bps rate cut is already factored in.
The Fed’s commentary on future rate policy will hold significant importance. Ahead of the event, the Dow Jones Industrial Average (DJIA) has seen a notable correction, while the S&P 500 and Nasdaq Composite continue to hold their ground.
As regards to institutional funds flow, FII selling has reduced but good buying is not yet seen. As we stated in our previous weekly report we expect FII buying to resume towards the end of December 2024 and start of January 2025. However sustainability of flows is still a question. India Equity - Institutional Funds Flow (Rs. crore)
Technical View
Technically, after a short-term correction last Friday, the market bounced back sharply. It not only reclaimed the 50-day SMA (Simple Moving Average) at 24,400/80,200 but also succeeded in closing above it, which is largely positive.
Additionally, it formed a promising reversal formation on daily charts, supporting a further uptrend from the current levels. We reiterate that a decisive move above 24,800 on the Nifty could trigger further recovery toward the 25,200–25,500 zone.
On the downside, the 24,400-24,500 zone is expected to provide strong support on a closing basis.
Strategy
We still maintain a “buy on dips” strategy, focusing on selective stock picking, with a preference for IT and Banking stocks, while other sectors contribute selectively.
In the broader market, midcap and small cap indices may witness some consolidation following their recent outperformance.
Investors are advised to be selective and cautious while picking stocks in these segments.
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