Markets for the Week : 04th to 08th July
Welcome to the Weekly Blog on Indian Equity Markets.
Important Weekly Close:
1. Sensex : +0.34% | 52907.93
2.
Nifty50
: +0.34% | 15752.05
3.
BankNifty
: -0.26% | 33539.45
4.
Gold
: +2.56% | 519179.00
5.
Silver
: -2.63% | 58175.00
6.
Crude
Oil : +0.75% | 108.45usd/b
7. USDINR : +0.88% | 78.920
As stated in the previous weekly blog, the Market was expected to be rangebound with 16000 as a very strong resistance on the NIFTY50. Precisely, for this week the Nifty50 continued to be rangebound between 15500-16000 (with 15511 as the Low and 15927 as the High.)
We have now completed the first Quarter of the Financial Year and the most important driving factor for the markets for this month would be the upcoming Quarterly Results. With majority of the companies facing High Inflationary pressures the operating margins / profits are expected to take a hit, forward commentary of all the companies will be important.
Some of the most important Results in the coming week are as follows:
|
Date |
Company Name |
Sector |
|
08th July |
Tata Consultancy
Services |
Information Technology |
|
09th July |
Avenue Supermart
(DMART) |
Retail |
SECTOR SPECIFIC OUTLOOK
|
BANKING
- Positive |
Ø As updated in the previous weekly blog, Bank Nifty was at an important support level and had shown the first sign of reversal.
Ø However, the continuous depreciation of the INR as compared to the US Dollar maintains to keep a pressure on the Banking Stocks.
Ø For this week the Bank Nifty remained resilient with a flat close and holding to its strong support zone.
Ø According to the RBI's recent Financial Stability Report (FSR), the Gross NPA of the Scheduled Commercial Banks fell to a six year low of 5.9. This is considered to be positive for the Banking Sector.
Ø Also, the stress test results presented in the FSR demonstrated that the banks are well positioned to withstand any severe stress scenarios (in case of any recession / slowing down of economy due to global factors) without falling below the minimum capital requirement, which is another positive for the Banking Stocks.
Ø With the domestic fund sources like the NCD's and the Commercial Papers becoming more expensive as compared to the Bank Credit after the recent hikes, the Corporates are approaching banks for Credit Borrowings.
Ø SBI, the largest PSB has received RBI approval to set up a subsidiary for its Operations Support. This will help bring down the cost to income ratio.
Ø On a positive note, HDFC Chairman Deepak Parekh does not see any impact on the housing loan demands despite the interest rate hikes.
Ø Also, HDFC Bank has assured that all the staff of HDFC Bank and HDFC Ltd will be retained post the Merger of HDFC twins.
Ø Recent Upgrades on Banking Stocks during the week : ICICI Securities has given a target of 1955 on HDFCBank which is an upside of 45%.
|
AUTOMOBILE
- Neutral |
Ø After maintaining a continuous positive outlook in all the Weekly Blogs of June – 2022, this sector now looks overstretched and may enter consolidation.
Ø Nifty Auto, for this week closed with a minor positive gain of 1.1% on the Index.
Ø The Nifty Auto Index is facing a strong resistance at 12000 and a rally of more than 5% from the current levels will only then bring a fresh breakout on the automobile stocks.
Ø During the week M&M launched the Scorpio-N which received a massive response. M&M has been highly successful with its recent launches in SUV segment viz Thar, XUV700 etc.
Ø TVS Motors gave a positive commentary w.r.t to its anticipated performance for the FY23. The company is in process to launch a premium bike anticipating a high demand in both the domestic and International Markets. The recent acquisition of Norton will also add value to the company.
Ø Tata Motors has committed to invest INR 15000 crore in the Electric Vehicle (EV) segment. It also looks at setting up separate stores for EV sales. The company is set to increase the price of its commercial vehicles by 1.5 to 2%. The company has partnered with Japan’s Renesas to develop chip solutions. India expects the domestic chip market to reach USD 63 billion in next 4 years from USD15 billion currently.
Ø Bajaj Auto declared a INR 2500 crore buyback at a max price of INR 4600 per share equivalent to 1.88% of Paid up capital. This muted the Investors’ Sentiments.
Ø Maruti is experiencing a fall in small and mini car segments as the Customer's preferences have shifted to compact SUV and larger hatchbacks. This is a major reason for the company to lose on its market share in the recent years. The shortage of electronic components has had an impact on the production and sales of company’s vehicles during the month.
Ø The supplies for Semi-conductors have eased in the recent times aiding the domestic automobile companies to speed up their production cycles.
Ø The sector after a strong performance in the current financial year should now be under wait and watch until there is a sure breakout. Since the markets have been experiencing sectoral rotation NiftyAuto may enter a consolidation range.
|
Maruti
Suzuki |
Domestic Passenger Vehicles
Sales |
|
Mahindra
& Mahindra |
Domestic Passenger Vehicles
Sales |
|
Tata
Motors |
Domestic Passenger Vehicles
Sales |
|
Escorts
Kuboto |
Domestic Tractor
Sales |
|
Bajaj
Auto |
Domestic 2Wheeler
Sales |
|
Hero
Motors |
Domestic Sales |
|
Eicher
Motors |
Domestic 2Wheeler
Sales |
|
FMCG
– Neutral |
Ø FMCG companies have reduced per packet grammage while keeping the prices the same to combat cost inflation, indirectly passing the cost inflation to customers.
Ø Personal care products on the other hand have witnessed a price hike of 15 to 20%.
Ø N. Chandrasekaran of Tata was quoted as saying that the current operating environment is highly volatile with regards to the FMCG Sector.
Ø ITC has been an outperformer in the complete FMCG space. The stock is up approximately 7% for the week and has touched 52 weeks high. Stable tax regime and increase in Hotel Reservations is driving the stock up.
Ø With rising commodity inflation and increase in logistics cost the operating margins are set to be under pressure.
|
Oil
and Gas - Negative |
Ø Crude Oil prices remain at elevated levels of USD 105-115 per barrel.
Ø Due to reduction in fuel supply from the private pumps over the last few weeks, there has been a Diesel shortage in many parts of the country.
Ø High Prices and Shortage of Diesel will have a negative impact on transportation costs. 70% of diesel consumption is by the transport sector. This will in turn increase the logistics costs for industry at a large, thus fueling inflation woes.
Ø During the week the Petroleum Ministry de-regularized domestically produced Crude Oil ,the decision would allow Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) to sell their domestic produce to anyone offering the most price in an e-auction. Currently the companies have to sell the crude oil only to the companies selected by the Government of India.
Ø Marketing freedom will lead to optimal price realization and support faster monetization of India's resource base.
THE SHOCKER : INDIA IMPOSES WINDFALL TAX ON REFINERIES
Ø A windfall tax is a higher tax rate on sudden big profits of a company or industry.
Ø As stated in the earlier blogs of June-2022 the Gross Refining Margins (GRM) were at Life-Time High Levels.
Ø The GRMs were at a 20 year high in case of Reliance Industries Limited.
Ø Hence there was an anticipation of exponential profits for Standalone Refineries like MRPL, CPCL and RIL.
Ø However, on the 1st July 2022 the GOI imposed Windfall taxes on Refineries. Moreover, the government also introduced export duties for Petrol, Diesel and Aviation Turbine Fuel.
Ø The above measures were taken by the government to support their tax-collection revenues by collecting more taxes from those industries who are making exponential profits in current times where the economy as a whole is under slowdown. The increase in duty is likely to fetch Rs. 1,10,000 crore this fiscal for the Government.
Ø The GOI imposed a Rs 6 per litre tax on the export of petrol and aviation turbine fuel (ATF) and a Rs 13 per litre tax on the export of diesel. Also, a Rs. 23,250 per tonne additional tax was levied on crude oil produced domestically.
Ø However, this would bring down the Operating Profits of the Refining companies drastically.
Ø Due to this the refining companies saw a huge single day fall in their stock prices as follows: Reliance (-7.20%), MRPL (-10%), CPCL (-5.18%), OIL (-14.97%), ONGC (-14%).
|
Metals
- Negative |
|
Information
Technology - Neutral |
Ø No fresh triggers as compared to the previous week. The sector is trying to reverse from an important support zone.
Other Important News
Ø The GOI imposed an additional 5% Import Duty on Gold to stabilize the widening Current Account Deficit.
Ø Reliance Industries Limited: India’s largest Private company is witnessing change in leadership as Shri. Mukesh Ambani is passing on the reins of the group companies to his children. Mr.Aakash Ambani has been appointed as the chairman of JIO PLATFORMS and Ms.Isha Ambani has been appointed as the chairman of JIO RETAIL.
Ø Ultratech Cement: is paying in Chinese Yuan for the coal imports from Russia. Irrespective of the western sanctions the Indian companies are able to procure commodities from Russia at discounted rates.
Ø Adani Group: The company has entered into copper manufacturing and is setting up the "Kutch Copper Ltd" at Mundra in Gujarat. It is scheduled to start by Q1 of FY24. It will be one of the largest copper refineries in the world.
Ø The GOI imposed a complete ban on Single Use Plastic Products. Thereby increasing the demand for Paper Products.
Ø Leather and Textile industry sees a fall by 15 to 20% in exports on account of global recession fears.
Positive News
Ø As per the latest RBI report the net profit of manufacturing companies have surged over by 55.2% for FY22.
Ø India and European Union have resumed free trade talks after a gap of 9 years.
Ø Growth of 8 core industries at 18.1% is recorded at a 13-month high in May. This was however on account of low base of the previous year due to Covid. However, the core sector reported a growth of 8.1% as compared to previous Covid levels.
Negative News
Ø The world's central bank umbrella body, the Bank for International Settlements (BIS), has called for interest rates to be raised "quickly and decisively" to prevent the surge in inflation turning into something even more problematic.
Ø Russia is on the brink of its first foreign default in a century on this Monday Morning.
Ø Risks of recession looms over Britain's economy.
Ø Japan's inflation is at 20 years high.
Ø The US economy shrank at a 1.6% annual pace in the first 3 months of the year.
Ø FPIs pulled over 50000 crores in the month of June, the worst since March 2020
Ø Fiscal deficit at 12% of budget estimate is 4% points higher than the previous fiscal year for the first 2 months
Ø Stagflation risks are rising, however the strength and resilience from macro fundamentals is catalyzing a speedy recovery.
Outlook for the Week
Ø Nifty50 has a strong resistance in the range of 16000-16200
Ø India is being highly resilient to the globally negative macro-factors
Ø As compared to the Developed economies India has been performing better.
Ø However continuous outflow by FII/FPI, depreciating Rupee and widening Current Account Deficit is resisting the markets from rising further.
Ø Unless the current quarterly results and forward commentary become positive there are no triggers in the markets for fresh upside.
Ø Bank Nifty is highly underperforming as compared to the Nifty50.
Ø Expect high volatility to prevail over next few weeks with large swings.
Ø Cautious approach for Trading & Investing is advised.
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.
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