Markets for the week 13th to 17th June

 As stated in the earlier week. Nifty had a very strong resistance at 16800. The markets remained suppressed and nifty only scaled upto 16600 on the upside.

Also it was informed that a bearish trajectory will start below 16250. Unfortunately the markets have closed at 16200 and that is signaling a strong weakness in the coming time.

The RBI Event

The RBI raised the RepoRate by 50bps. This is one of the highest single policy increase in a decade. 

Such rate hikes are done to bring down inflation and inflation is at multi decade highs in India and other parts of the world.

Increase in repo rates usually increases fixed income returns thus causing an outflow from Equity Markets towards fixed income products. Hence markets will remain suppressed in the near future.

The RBI governor has given a cautious stance on account of global factors accelerated by War and Inflation. 

There is anticipation of more aggressive rate hikes in the current calendar year, another reason to keep markets under pressure.

Sectorial Specific Outlook

Metals (-ve) : The metal sector continues it downward journey on account of fall in base metal prices. There is an anticipation of fall in demand from the largest metal consumer in the World (CHINA) on account of resurgence of Covid in select parts of China. Moreover the easying of imports of metals into India and restrictions of exports in metals from India with a fall in domestic demand is affecting the Metal companies.

Another fall in Metal prices are anticipated in the coming week. Thus METALS will broadly underperform.

Information Technology (+ve) : Majority of Indian IT companies drive their revenues from International markets. With recession driven western economy there are margin pressures on the IT industry. Also an increase in fixed costs for retaining employees within the IT industry is causing the margins to be suppressed. IT has been underperforming continuously since past 4 months with deep drawdown in stocks.

Automobile (+ve) : This is the only green patch in an otherwise underperforming markets. Fall in metal prices, EV push by the government, better Sales data as compared to last 2 years on account of Pent up demand , Newer variants by Mahindra and Mahindra, Capex plans by Maruti, EV dominance by TataMotors and launch of Chetak (EV bike) by Bajaj is driving this sector strong.

Oil and Gas : Crude Oil remains at almost life highs causing more inflationary pressures. As stated earlier Refining Margins are also at life highs bringing exponential rally in refinery stocks like CPCL, MRPL, PanamaPetro and RELIANCE INDUSTRIES. Crude oil is expected to remain at elevated levels causing more sentiment hurting on account of Inflationary pressure.

Defence (+ve) : Another great sector to keep a watch on because of high government priority and focus. With an additional influx of 76000 cores for military modernization this sector will continue to remain in focus.

Banks (-ve) : As stated earlier the street expectations for succession plan at Kotak keeps kotak to consistently underperform. HDFC bank remains under pressure on account of Merger process ambiguity from RBI. PSU banks continue to remain in pressure due to muted margins. Also increase on FD rates and lending rates after the rate hikes will bring an overall slowing of credit flow into the system.

Other Sector News :

Sugar continues to remain in focus on account of Ethanol boost from the Government. There are savings of 41000 crore on account of fuel blending. (Positive)

Cement remains in pressure on account of Capex plans by UltraTech and Dalmia Bharat and anticipated market share and price fight after entry of Adani. (Negative)

Textiles face strong headwinds on account of very high cotton prices. There is a lack of demand for Yarn in local markets causing many Spinning Mills to shut down temporarily. (Negative)

Fertilizer stocks will remain in focus on account of approaching Monsoon Season. (Neutral)

Power Stocks : India recorded highest ever demand for Electricity. It anticipates to remain elevated in the future thus bringing positive momentum for Power Stocks (positive). 

Some Chemicals companies are seeing some accidents on account of fire / gas leaks. The sector remains highly sensitive and subjective.

Further Market Outlook

1. Markets will be in pressure until RETAIL INFLATION eases out.

2. War uncertainty prevails, capping the market upside.

3. Rise of Domestic Covid Cases and in China brings in fear of supply disruption causing demand suppression. 

4. Impact of rate hike needs to be seen in Retail Demands.

5. High anticipation for US markets to enter Recession.

Weekly Outlook : Neutral to Negative with upside capped at 16600.

DISCLAIMER : THE ABOVE VIEWS ARE EXPRESSED ON BASIS OF BROAD MARKET NEWS. THERE ARE NO SPECIFIC RECOMMENDATIONS TO BUY SELL OR HOLD. KINDLY CONSULT YOUR FINANCIAL ADVISOR BEFORE INVESTING INTO STOCK MARKETS. INVESTMENT INTO EQUITY MARKETS ARE SUBJECT TO RISKS.