Markets for the week 20th to 24th June

Welcome to the weekly blog on Indian Equity Markets

• It was mentioned in the previous week that a close below 16250 on Nifty50 will bring strong weakness. The markets had closed below 16200 last Friday and the low on the Index this week was 15186 which is a fall of almost 1000 points. Officially starting a bearish trajectory on the Indian Markets.

The FED Rate Hike

• The US FED hiked the Interest rates by 75 bps a single largest hike since 1994. There was a further commentary that a rate hike of another 75 bps can come by July 2022. 

• The US Fed remains strongly committed in returning the inflation to 2% and hence further tightening of rates is seen.

Impact of Rate Hikes globally

• Increase of 50bps rate by Indian RBI in the previous week the highest in a decade.

• Increase of 75bps rate by US Fed this week the highest in almost 2 decades.

• Increase of rate hikes in the UK for the 5th consecutive time and the hike in Switzerland being one of the highest in years.

All the above has caused the global markets to witness withdrawal of liquidity and a continuous sell off on the equity markets continue on the global levels continue.

Anticipation of rate hikes across the global economies to continue until the decades high inflation across the World cools down. US inflation surged to a record 41 YEAR HIGH.

Sector Specific Outlook

Metals (-ve) : 

• Metal sector continues its downward spiral with an additional fall of approximately 10% on the Index touching fresh 52 week lows. 

• Metal sector continues to witness selling pressure on account of muted demand globally, disruption from China, recession worries in the Europe and US, policy changes in India has broken the bull cycle in Metal Stocks.

• Metal prices are down by approximately 35% in last 2 months.

• Demand and Margin muting continuously impact the Aluminum Companies.

Information Technology (-ve) : 

• Global growth is expected to moderate from 6.1% in 2021 to 3.6% in 2022.

• IT companies are witnessing revenue moderation in constant currency terms.

• Premium valuations on IT stocks remain under pressure. 

• IT index continues its fall for the 11th week with a drawdown of approximately 9% in this week bringing IT stocks to 52 week lows.

Automobile (neutral) :

• Supply side concerns from China with regards to Semi Conductors prevails.

• Components shortages on account of Ukraine-Russia war is dampening the production cycle for local Automobile companies.

• China concerns on JLR Sales of TataMotors.

• Withdrawl of BuyBack proposition from Bajaj Auto as declared in the previous week 

All the above dented the otherwise stable Auto Index.

• However the sector continues to see green shoots with Maruti's change in sector focus into the SUV markets.

• New product launches from Mahindra and Mahindra. 

• Earlier announced Capex plans from Maruti and Tata Motors.

• Dominance of Tata Motors in the EV segments.

• Anticipation of EV sales to cross the 10 million mark by 2030.

• Set-up of Battery Stations by OMC's over the next few years.

• Diclosure of increase in stake by LIC in HeroMotoCorp fro the period Jan-June 2022.

• Ashok Leyland's plan to raise 300 million USD and also unveiling of e-bus platform.

• Mahindra and Mahindra sees an uptick in demand and subsequently plans to set up its first Tractor Plant in Punjab after a decade.

• Arm of TVS motors in the UK plans for the production of EV motorcycles. 

• Increase of two wheeler insurance policies on digital platforms.

Banks (oversold) : 

• Sucession plans at Kotak continues to retain pressure on the Stock price with a drawdown of 6% on weekly basis.

• Increase in lending rates with all major banks after the Rate Hike Increases.

• The Banking Index looks highly oversold and can expect a bounceback in the same with ICICIBank looking placed strong on the Technical Charts. 

• The fall in Gross NPA for the banks falls below 6% the lowest in 6 years, a positive for the Bank Stocks.

• HDFC is into the final stage to sell its 4 stressed accounts before the merger with HDFC Bank, positive development for the Merger.

Energy Sector (+ve) :

• High investments in the Indian Renewable Energy Sector 

• Highest power consumption demand for Energy keeps the trajectory positive.

GENERAL SECTORIAL OUTLOOK

Oil and Gas

• The refining Margins are at life highs and will continue to remain positive for standalone refineries like MRPL, CPCL and Reliance (whose GRM are at 20 year highs)

• Crude oil continues to remain at Life Highs impacting the margins for OMC's. BPCL, HPCL, IOCL stock prices remain at 52 week lows. 

• Private fuel pumps in multiple states have either reduced the sales / shut down pumps on account of retail price capping by the Government causing retail fuel disruptions.

•ATF price rises will impact Airline Operstors.

 • Natural Gas prices saw a approximate 22% fall. This can prove beneficial for the otherwise hammered down stocks like MGL, IGL and GUJGAS. 

Cement

• High Capex plans as announced in the earlier few week, Entry of Adani group with Holcim Aquisition, approaching Monsoons and muted domestic demand keeps the Cement companies under pressure.

• Fitch Ratings has reduced the capability utilization of Cement Companies to 65% of capabilities negatively impacting the stocks.

Sugar

• Sugar stocks remain in focus as government caps Export limited to control sugar price inflation.

Fertilizer and Agrochemicals

• Capex plans across the above space between the FY23 to FY25.

Other Important News impacting the Markets

Negative :

• Indian funds in the Swiss Banks jumps by 50%. Now over 30,000 crores.

•  GDP forecasts cut for the Financial Year 2023.

•  Wholesale Price Index spikes to record highs in India.

•  Consumer Price Index spikes to highest levels in Switzerland.

• US Markets have entered the Bear Markets.

• Data showed that SIP investments have fallen to a 12 month low.

Positive

• The FOREX reserves maintained by the RBI would help India counter the global volatility.

• advance tax collections rises by 48% for Indian corporates for April to June Quarter.

• Exports rise by approximately 21%  in May 2022.

• May CPI has cooled down to 7.04% on Month on Month basis from its life highs in April 2022.

• India's factory outlook jumped to a 8 month high in April 2022.

• As per the RBI India is better placed to handle stagflation worries as compared to other global economies.

FUTURE OUTLOOK OF MARKETS

 

• Last week the upper cap given on Nifty50 was 16600 with an open view on downside. NIFTY50 LOST 1000 points subsequently.

• Now 16000 looks a very strong resistance for 6 to 9 months.

• Markets expected to be range round with a negative bias.

• Every rally in the markets would be sold into on broader basis.

• Large Cap stocks (BluChips) look at very attractive valuations. Staggered buying SHOULD be initiated in them.

• A relief rally can be anticipated in the Nifty 50 and BankNifty in the first half of the coming week as per Technical Setup.

• Avoid volatile and news based stocks. Midcap and Small Cap Stocks. High Volatility is expected.

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.