Markets for the week 27th to 30th June

Welcome to the Weekly Blog on Indian Equity Markets.

It was highlighted in the previous blog that a relief rally can be expected in the first half of this week and precisely on TUESDAY the nifty50 showed a decent 350 points rally along with an Intraday rally of 900 points on the BankNifty.

Following the exact stated timeframes the rally fizzled out on Wednesday and both the indexes closed for this week at around the highs of Tuesday after consolidating for the remainder of the week.

The US Markets and Powell Testimony:

• FED Chairman Powell, stated that the top priority for the current period is to control the high level of INFLATION.
• This would however also bring the risk of Recession, but it was stated that : it is more important to control the INFLATION.
• The US Markets however discounted the above testimony and rallied by approx 700+ points on DOW JONES on Tuesday 21.06.2022.
• The markets are anticipating that INFLATION will ease in the near future considering the recent easing on commodities prices : Crude Oil (which is under 110 USD per barrel), Natural Gas (down -15% for the week), fall in base metals, fall in Edible Oil and other stable commodity prices. - basically the market seems to have factored-in the maximum potential inflationary fear to the economy, for NOW.

Sector Specific Outlook:

METALS : Avoid

• Metal Index is down by a further -3% for the week (net down by approx. -30% in 2 months).
• The fall in base metal prices affected by subdued demand and efforts by global economies to control prices of metals have brought the recent correction.
• Shift in focus to move into eco-friendly steel production will widen the loss for steel companies.
• Domestic economic policies to liberalise imports and restrict exports is resisting the metal stocks to see any upside momentum.
• Also the rise in USD as compared to INR is impacting the Metal sector.
• This sector still doesn't look attractive for investment until the above MACROS are very clear.
• For now the Metal sector looks a little oversold and we can see some stability / consolidation in the same.

INFORMATION TECHNOLOGY : Wait, Watch & Catch

• The highly oversold IT index which was down by -25% in the last 2 months saw a relief rally of approx 4% this week.
• Usually the Indian IT stocks take their guidance from the US IT stocks.
• Accenture declared good results (with second highest quarterly sales ever) and strong guidance all eyes are now set on the Indian IT stocks.
• If the markets find any support it will next be from this sector.
• Technically last-time the US IT index was this oversold was only in 2009.
• Technically the IT sector is at a very important support , waiting for the first sign of reversal. Avoid overstretched midcap IT shares. Look for Blue Chip Oversold IT companies.

Automobile : Positive

• Stated continuously in all the earlier blogs that this is the only positive sector in the otherwise downward market.
• Auto Index is up 7% for this week, It is up by almost 9% in the last 2 months - a clear outperformer in an otherwise negative broader market.
• Reduced Metal Prices, Depreciating Yuan, Segment shift to SUV (Maruti), Sale Price hikes by automobile companies (Heromoto corp), easing of supply chain issues, high anticipation of robust domestic demands (M&M), plans to launching of 100% online sales platform (TataMotors), re-initiation of BuyBack by (BajajAuto) which will be declared in the coming week, aggressive launches of EV across all segments is continuously driving the sector.
• Only red-flag was the fire accident of TataNexon (the most successful INDIAN EV) on Thursday in Mumbai. The government and company have both probed for an enquiry, the outcome of which will have impact on both the company and EV path forward for Indian auto companies.
• The sector is approaching its LIFE TIME HIGH LEVELS.

Banking : Positive

• Stated in the previous weekly blog that BankNifty was oversold, Clearly mentioned expect a bounceback. The sector was up approx 3% for this week.
• Technically the sector is at a very important support level and has shown its first sign of REVERSAL.

FMCG : Neutral

• Fall in commodity prices : Palm Oil (-15%), Soybeans (-7%), Wheat (-10%) and other commodities reduced the fears of margin pressure on FMCG companies.
• Many FMCG companies (mainly HUL) went for a price hike to pass the margin pressures to consumers.
• The above 2 factors supported the FMCG stocks for the week.
• ITC saw a sharp rise in its forex revenues aided by increase in exports. 
• This sector has a direct correlation to inflation, if the inflation rises the sector will underperform.

General Sectoral Outlook:

• OMC's (HPCL, BPCL, IOCL) continue to remain in pressure on account of elevated levels of crude.
• Cement Stocks remain lacklustre on account of rising Capex, falling demand, rising internal competition and shortage of coal supplies to non-power sectors.
• GRM continues to remain at all time highs benefitting standalone refineries = CPCL, MRPL and RIL.
• It was updated on twitter handle (mitesh_nifty) that a fall in cotton prices is anticipated. Cotton prices are effectively down 20%, further correction is awaited in the same.

Other Important News impacting the Markets

NEGATIVE

• USDINR remains at life highs - impacting inflation and Current Account deficit.
• Government revenues to take a hit on account of reduction in Fuel Excise duties increasing the risk of fiscal deficit.
• Inflation has been above 6% for 4 consecutive months.
• FII owns Indian Stocks at the lowest levels in 5 years.
• Downgrade in Global GDP growth.
• Inflation in the UK at a 40 year high.
• Bank of America stated that there is a 40% chance for the US to enter recession.
• FII outflows stands at -53600.40 (cash markets) crores for the Month on date.

POSITIVE

• RIsk of Stagflation low in India due to prudent government policies
• Provisional estimates of GDP as on 31.05.2022 states that Indian Economy has fully recovered to its pre-pandemic levels. - MER
• Composite PMI is at its highest levels in the last 18 months.
• Pent-up CAPEX will further fuel the Indian Economy.
• India almost imported 10% of its oil requirement up from 2% from Russia - OMC's keen on entering long term agreements with Russia. Discounted (a difference of almost 3-4 USD) crude oil will have a positive impact on Indian Inflation.

FUTURE OUTLOOK OF THE MARKETS:

• Currently the market is under the phase No Bad News Is Good News : Globally the retail investors have digested the prospective rate hikes and Russia-Ukraine War Scenario. 
• The Market is expected to be range bound.
• The Market may head for 16000-16200 in the coming week.
• However, 16000-16200 is a very strong resistance for the markets.
• Any close ONLY above the given levels will lead to a change in Market sentiment.
• Overall the Macros are still very risky - a cautious approach as a market participant is advised.