Markets for the Week : 8th August - 12th August

WELCOME TO THE WEEKLY BLOG ON INDIAN EQUITIES MARKETS

Important Weekly Closes:

PARTICULARS	WEEKLY CLOSE	% CHANGE
Sensex	58387.93	+1.42%
Nifty50	17397.50	+1.39%
Bank Nifty	37920.60	+1.14%
Gold	51874.00	+0.87%
Silver	57364.00	-1.72%
Crude Oil	89.01 Usd/Bl	-9.74%
USDINR	79.354	+0.17%

RBI Policy: Dated 06.08.2022

RBI increased the Indian Headline Policy Repo Rate by 50 basis points (0.5%) from 4.9% to 5.4%

The rate hike was in-line with the street expectations and the Repo rate now at a 3-year high.

GDP growth is retained at 7.2%

Impact of Repo Rate Hike:

For Consumers, the cost of Borrowing goes up (Usually EMI’s on Car, Houses, etc). Subsequently the demand for the Products goes down. - (Negative).

People migrate from Variable Investment Classes (Like Equities) to Fixed Income Investments (Like Fixed Deposits, Government Bonds) etc.

For Corporates, the cost of borrowing goes up, this in turn reduced the Profit Margins. Capex (Capital Expenditure plans are postponed by the companies). - (Negative)

Companies who have less Debt/Loans on their Balance Sheets are preferred investment choices.

Key Takeaways from RBI Policy:

Positives

1. India is expected to remain amongst the fastest growing economies in the world for the Financial Year 2022-2023 as per the IMF.

2. Current Account Deficit is expected to be within sustainable limits.

3. India’s Financial Sector remains well capitalized and sound.

4. CPI (Consumer Price Inflation) has eased from its peak in April-2022, However it is still above the RBI’s threshold target of 6%. Household inflation has eased but still remains elevated.

5. Domestic Economic Activities are showing good signs. Monsoons are above normal.

6. Consumer Durables, Auto Sales, Passenger Traffic all suggest improvement in Urban Demand.

7. 2-Wheeler Sales and Commercial Vehicle Sales remain robust.

8. Production of Capital Goods remains normal. PRI rose to an 8-month high in July 2022.

9. Manufacturing Sector remains stable. Capacity utilization in the Manufacturing Sector remains above normal. Corporate results from the manufacturing sector indicate stable Sales and Profits. Manufacturing firms sustain a good order flow.

10. Credit growth of banks have accelerated by 14% on YoY Basis.

11. The Forex reserves of India are now the 4^th largest in the world. 

12. Positive FDI data at 13.6 billion USD as compared to 11.30 billion USD on YoY basis.

Negatives

1. Indian Markets have witnessed a large Portfolio Outflow to the tune of 13.30 billion as on 03.08.2022.

2. External Debt: GDP has fallen from 21.21 to 19.91 in March 2022.

Snapshot of Important June Quarter Results for the week 1st - 6th August 2022.

Below are the list of Fundamentally Stable companies that have declared good results for the quarter ending June 2022.

Nifty 50 

As mentioned in the previous weekly blog the important level to watch for Nifty was 17380 – 17425. Precisely the Nifty consolidated around these levels, with daily closes as such accuracy.

Monday                                  : 17340.05

Tuesday                                 : 17345.45

Wednesday                           : 17388.15

Thursday                               : 17382.00

Friday                                     : 17397.50

The weekly high on the Nifty was also restricted to 17490. And the Weekly close was 17397.50.

Effectively, we see a movement only above 17500 on the upside and 17350 on the downside.

Nifty Bank

With regards to Bank Nifty the important levels to watch in the previous blog was 37850 – 38025. Precisely the Bank Nifty consolidated around these levels, with daily closes as such accuracy.

Monday                                  : 37903.20

Tuesday                                 : 38024.00

Wednesday                           : 37989.25

Thursday                               : 37755.55

Friday                                     : 37920.60

For now, the Bank Nifty remains rangebound. Important Resistance is at 38000 on closing basis and Support is at 37500 on closing basis. Both the Private and PSU bank index is now at resistance.

Rising repo rate would help Banks in their Net Profits; however, the loan demand might see a fall thus affecting the top line.

SBI posted weak quarterly Numbers (refer: result table above) and missed the street estimates. 547 is now a very strong resistance for the stock.

Nifty Auto

Nifty Auto remains well placed until the Auto Index hold 12000 levels.

However, after the recent rally and the China-Taiwan political tensions (chip shortages can increase) could create pressure on the sector restricting further upside or possibly putting the sector under consolidation in the coming week.

On a positive side the EV registrations were at an all-time high in July2022.

Overview on Auto stocks for the coming week:

Maruti Suzuki: The stocks look positive only above 9200, View for next week: Negative

Mahindra & Mahindra: Clear outperformer of the sector. The company recorded highest ever Quarterly Revenue. Mahindra now controls over 40% in the Tractor Market share and the topmost 3-Wheeler EV company with a market share of over 75%. 

Tata Motors: 475 remains an important level for upward trajectory. A close above 475 would be very positive for the stock. Also, the company recently announced its growth plans at over 40% for Q2 of FY22.

Bajaj Auto: 3900 remains an important support level for the stock. View for the Next Week: Positive.

Hero Moto: The stock looks set to see some retracement on the downside form the current levels.

Eicher Motors: The stock looks to be under consolidation, immediate support on the stock is at 3000 Immediate Resistance is at 3200.

TVS Motors: View for the next week: Positive

Ashok Leyland: View for the next week: Negative

Balkrishna Industries: Reported weak earning with very subdued Operating Margins. 

Nifty FMCG

Stable Palm-Crude Prices, Re-initiation of Exports from Ukraine keeps the sector stable. 

FPI inflows increased in the FMCG stocks.

ITC reported robust growth across all segments. Hotel business also reported robust quarter. EBIDTA margins were stable. Cigarettes volumes, agricultural exports, paperboard demand boosted the growth. Stable taxation on the cigarettes keeps the stock well poised.

Britannia Industries: posted weak quarterly numbers and missed the street estimates.

Also, as mentioned in the previous blog NESTLE had an important support at 19000. The stock made an exact low of 19068.60 and closed at 19954.10, covering almost 900 points from the said levels. Also, Tata consumers was at an important resistance of 825, the stock reversed from 928.50 and closed down by -3.32% at 788.60 for the week.

Stock on Radar for the coming week: Hindustan Unilever (Positive till it holds 2590), ITC (Positive till it holds 300), Nestle (Positive), Britannia and Tata Consumer (Negative).

Nifty IT

The IT Index faces a minor resistance at 30100, above which the sector is poised to perform well. In case if the market remains unsupportive for the coming week the Index can consolidate between 29000 – 30000.

Currently there are no fresh triggers for this sector. Technically however the following stocks can perform better: Wipro, LTTS and Infosys for the coming week.

Nifty Oil and Gas

The recent drop in Crude Oil prices can provide some relief to Oil Marketing Companies. Stock viz. HPCL and BPCL look well placed for an up move.

Elevated prices of Natural Gas keep stocks such as MGL, IGL and GUJGAS under pressure. Worries for Gas Supply disruptions on account of geo-political tensions would further keep the gas prices elevated maintaining margin pressures on these companies.

The Gross Refining Margins continues its downward trajectory by falling over -93% in last 2 months. The GRM’s are now at a 52-week low, this would be detrimental for standalone refineries as MRPL and CPCL. This would also continue to maintain pressure on Reliance Industries. Also, frequent revision of the windfall taxes lends uncertainty to these companies.

Nifty Metals

No Fresh trigger, still a sector to avoid.

Cement Sector

Cement companies are expected to register a 7-8 per cent rise in their volumes in FY23 on strong demand, but operating profit margin may decline due to elevated input costs, as per the ratings agency ICRA. The operating margins will be the lowest in the last seven years for the cement industry, the report said. In FY23, the volume for the cement industry is expected to grow by 7-8 per cent to around 388 million metric tonne. (Negative)

Notes:

The markets after a decent rally for past 5 weeks now face geo-political tensions from China-Taiwan in addition to already ongoing Russia-Ukraine. Any negative development on the Asian geo-political issue would bring a sharp correction in the market. 

Also in the previous weekly blog it was mentioned that INDIA VIX was low substantially and any macro event should trigger the same. During the week INDIA VIX rose by approx. +27% and closed +14.29% for the week.

Interest Rate hikes continues to dent Investor Sentiments, however after persistent rate hikes there are no speedy signs of softening Inflation, maintaining room for future rate hikes.

Comments from the finance minister with regards to no threat of Stagflation / Inflation for India clearly places India better than majority of Financial Markets, however international sentiments would keep the markets from rising briskly. GST collection rose by 28% for July2022 on month-on-month basis and was the second highest collection ever at Rs. 1.49Lakh crore. 

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