Dalal Street nosedives for fifth straight week

Extending southward journey for fifth straight week, Indian equity benchmarks ended the passing week below their crucial 52,800 (Sensex) and 15,800 (Sensex) levels as traders remained worried after the US inflation data hinted at more aggressive tightening by the Federal Reserves to tackle slowdown in economies over world. Markets started the week on pessimistic note as traders remain concerned with a private report that foreign funds' ownership in domestic equities fell to pre-COVID lows and hit a multi-year low of 19.5 per cent in March this year in NSE500 companies valued at $619 billion. Key gauges extended losses and traded in red throughout the week as market participants remain concerned with a private report that Indian retail inflation likely surged to an 18-month high in April, largely driven by rising fuel and food prices and staying well above the Reserve Bank of India's upper tolerance limit for a fourth consecutive month. There was some cautiousness as Meghalaya Governor Satya Pal Malik said increasing inflation and unemployment are going to create a situation of crisis in the country but no leader is ready to speak on the issues.  Worries extended as data released by the RBI showed that India's outward foreign direct investment (OFDI) nearly halved to $3.39 billion in April on an annual basis. The OFDI stood at $6.71 billion in April 2021. Some cautiousness came in with a private report that the GST council is mulling a 28 per cent tax on crypto currencies, at par with the current GST on casinos, betting and lottery. Sentiments also remained fragile as foreign investors have sold Indian equities worth $1.82 billion so far this month, shedding stocks worth $374 million in the fourth straight day of net selling on May 10. Some anxiety was also among the domestic traders with private report has lowered its forecasts for India's economic growth in the next two fiscal years, saying a global slowdown, surging oil prices and weak domestic demand would take a toll on Asia's third-largest economy. It said gross domestic product growth will be 7.6% for fiscal 2023 and 6.7% for fiscal 2024, 30 basis points lower than the previous estimates. On the economic front, India’s headline inflation galloped for a seventh straight month to touch an 8-year high of 7.79 per cent in April on rising food and fuel prices, raising the odds of an interest rate hike by the RBI early next month to tame prices, while India’s industrial production inched up 1.9% in March 2022 from 1.7% in February 2022.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 2041.96 points or 3.72% to 52,793.62 during the week ended May 13, 2022. The BSE Midcap index losses 1313.95 points or 5.68% to 21,815.66, while Smallcap index slipped 1776.66 points or 6.56% to 25,315.75. On the sectoral front, S&P BSE Metal was down by 2,734.27 points or 13.22% to 17,946.07, S&P BSE Power was down by 624.02 points or 12.90% to 4,215.14, S&P BSE PSU was down by 598.67 points or 6.82% to 8,182.67, S&P BSE Realty was down by 187.92 points or 5.79% to 3,058.14 and S&P BSE Consumer Durables was down by 2,253.72 points or 5.78% to 36,709.67 were the top losers on the BSE sectoral front, while there were no gainers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 629.10 or 3.83% to 15,782.15. On the National Stock Exchange (NSE), Bank Nifty was down by 812.65 points or 2.35% to 33,778.55, Nifty IT was down by 854.20 points or 2.78% to 29,865.25, Nifty Mid Cap 100 was down by 1200.90 points or 4.20% to 27,383.30 and Nifty Next 50 was down by 2039.25 points or 5.05% to 38,315.00.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 28,146.38 crore and gross sales of Rs 46,945.29 crore, leading to a net outflow of Rs 18,798.91 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 2,211.79 crore against gross sales of Rs 5,468.16 crore, resulting in a net outflow of Rs 3,256.37 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 72.18 crore and gross sales of Rs 97.58 crore, leading to a net outflow of Rs 25.40 crore.

Industry and Economy

With headline inflation accelerating to an eight-year high of 7.79 per cent in April, ratings agency Crisil said price rise is getting broad-based, and the Reserve Bank is likely to respond with rate hikes of up to 1 percentage point in FY23. It mentioned ‘Inflation is set to become broad-based this fiscal, rising across food, fuel and core inflation....we expect the RBI to raise repo rates by another 0.75 per cent to 1 per cent in the rest of this fiscal.’ The RBI hiked its key rate by 0.40 per cent in a surprise move last week while keeping an accommodative stance. Crisil said it now expects the average consumer price inflation for FY23 to come at 6.3 per cent -- above the RBI's tolerance of 6 per cent -- as against 5.5 per cent recorded in FY22.

Outlook for the coming week

In the passing week, key gauges ended in deep red amid fall in global equities after the US inflation data hinted at more aggressive tightening by the Federal Reserves to tackle slowdown in economies over world. Russia-Ukraine war and China's covid lockdowns also dented sentiments.

Traders will be looking forward toward the Wholesale Price Index (WPI) data for the month of April, scheduled to be release on May 17. WPI in India rose to a four-month high of 14.55 percent in March 2022 from 13.11 percent a month earlier amid broad-based price increase due to disruption in global supply chains caused by Russia-Ukraine conflict.

In the ongoing result season, traders will be eyeing earnings of prominent companies, including Dmart, Century Plyboards, MCX, Bajaj Electricals, Bharti Airtel, Indian Oil Corporation, Minda Corporation, Zydus Wellness, ITC, Lupin, NDTV, Pidilite Industries, Ashok Leyland, Bosch, CONCOR, Dr.Reddy's Laboratories, Godrej Consumer Products, V-Mart Retail etc.

Next week, apart from capital markets there will be some buzz in the primary markets too, as 2 IPO’s were lined up. Paradeep Phosphates and Ethos are coming up with IPO to raise around Rs 1579 crore and Rs 491 crore, respectively.

On the global front, investors would be eyeing few economic data from world’s largest economy, starting with Retail Sales, Redbook, Industrial Production on May 17, followed by Housing Starts, 20-Year Bond Auction on May 18, Initial Jobless Claims, Existing Home Sales on May 19 and finally Baker Hughes Total Rig Count on May 20.

Top Gainers

  • Bajaj Auto up by 3.35% was the top gainer on Nifty for the week - Bajaj Auto traded higher due to bargain hunting after it fell recently on reporting weak quarterly profit as well as sales numbers. The company reported 1.62% fall in its consolidated net profit at Rs 1526.16 crore for Q4FY22 as compared to Rs 1551.28 crore for Q4FY21. Also, the company reported 20% fall in total sales to 3,10,774 units in April 2022 as against 3,88,016 in the same month last year. Total domestic sales decreased by 24% to 1,02,177 units in April as compared to 1,34,471 units in April 2021.
  • Hindustan Unilever up by 1.27% was another top gainer on Nifty for the week - Hindustan Unilever gained after it raised product prices by up to 15% across categories. As per the report, the company increased the prices of its goods for the second time in a month as it had last hiked the rates only in April. The Russia-Ukraine war has resulted in supply chain disruptions for most Indian companies. Another factor for the hike in FMCG product prices might be Indonesia's ban on palm oil exports. It's the main ingredient in shampoos and soaps, among others.

Top Losers

  • Hindalco down by 15.94% was the top loser of the week on Nifty - Hindalco Industries witnessed selling pressure as its subsidiary -- Novelis reported 15% year-on-year (YoY) decline in adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) at $431 million during the quarter, primarily due to short-term operational cost challenges. The lower Ebitda on account of approximately $55 million of higher operational costs, primarily in North America, as a result of production and logistics challenges that are not expected to continue in fiscal 2023.
  • JSW Steel down by 15.16% was another top loser of the week on Nifty - Select metal stocks came under pressure amid uncertainty over global demand. China, a significant consumer of metals, has gone into lockdown because of an increase in the number of covid cases. Also, JSW Steel has put its Italian businesses, which were acquired in 2018, on the block as rising raw material costs and geo-political issues hindered its operations and attempts to revive them failed. The company had acquired the entire stake in three Italian businesses as part of its overseas expansion plans.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 16,404.55 on May 10 and lowest level of 15,735.75 on May 12. On the last trading day, the Nifty closed at 15,782.15 with weekly loss of 629.10 points or 3.83 percent. For the coming week, 15,543.75 followed by 15,305.35 are likely to be good support levels for the Nifty, while the index may face resistance at 16,212.55 and further at 16,642.95 levels.

US Market

The U.S. markets ended lower during the passing week on concerns about the outlook for the global economy. Traders seem worried aggressive moves by global central banks to contain inflation could lead to a period of stagflation or an outright recession. Further, weakness also prevailed in the markets after a highly anticipated report released by the Labor Department showed the annual rate of U.S. consumer price growth slowed by less than expected in the month of April. The Labor Department said consumer prices in April were up by 8.3 percent compared to the same month a year ago. While the annual rate of growth slowed from a 40-year high of 8.5 percent in March, street had expected the pace of growth to slow to 8.1 percent.  Energy prices skyrocketed by 30.3 percent year-over-year, while food prices spiked by 9.4 percent, reflecting the largest yearly increase since the period ending April 1981.

The annual rate of growth in core consumer prices, which exclude food and energy prices, also slowed to 6.2 percent in April from 6.5 percent in March, although the rate was expected to decelerate to 6.0 percent. Prices for shelter and medical care jumped 5.1 percent and 3.2 percent, respectively, while prices for used cars and trucks and new vehicles also showed notable yearly increases. Meanwhile, Producer prices in the U.S. increased in line with street estimates in the month of April, according to a report released by the Labor Department. The Labor Department said its producer price index for final demand rose by 0.5 percent in April after surging by an upwardly revised 1.6 percent in March. Street had expected producer prices to advance by 0.5 percent compared to the 1.4 percent jump originally reported for the previous month. The report showed energy prices surged by 1.7 percent in April after soaring by 6.4 percent in March, while food prices shot up by 1.5 percent after spiking by 2.5 percent.

Excluding prices for food, energy and trade services, core producer prices climbed by 0.6 percent in April following a 0.9 percent increase in March. Prices for services came in unchanged in April after jumping by 1.2 percent in March, as a spike in prices for transportation and warehousing services was offset by lower prices for trade and other services. Besides, a report released by the Labor Department unexpectedly showed a slight increase in first-time claims for U.S. unemployment benefits in the week ended May 7th. The Labor Department said initial jobless claims crept up to 203,000, an increase of 1,000 from the previous week's revised level of 202,000. The uptick surprised participants, who had expected jobless claims to dip to 195,000 from the 200,000 originally reported for the previous week. The report showed the less volatile four-week moving average also edged up to 192,750, an increase of 4,250 from the previous week's revised average of 188,500.

European Market

European markets ended passing week on a higher note. The start of the week was in red, as France's trade gap widened in March due to rising imports. The data from customs office showed that the trade deficit increased to EUR 12.4 billion from EUR 10.4 billion in February. Exports dropped slightly by 0.1 percent from the previous month, while imports advanced 3.5 percent in March. On a yearly basis, exports and imports grew 18.2 percent and 27.1 percent, respectively. Besides, Eurozone's investor confidence declined to a near two-year low in May as early indicators suggest that the currency-bloc is moving towards recession following the war in Ukraine. The results of a closely-watched survey showed that the investor confidence index dropped more-than-expected to -22.6 in May from -18.0 in April, the behavioral research institute Sentix said. The score was forecast fall to -20.8. The third consecutive decline took the index to its lowest since June 2020.

But, markets stage recovery during the week, after Sweden's jobless rate decreased to the lowest since June 2019. The preliminary data from the Public Employment Service showed that the unadjusted unemployment rate decreased to 6.81 percent in April from 6.99 percent in March. This was the lowest unemployment rate since June 2019, when the rate was 6.79 percent. In the same month last year, the jobless rate was 8.2 percent. The number of unemployed fell to 344,536 persons in April from 425,266 persons a year ago. Further, Germany's economic confidence improved in May but remained at a very low level as the economy is expected to continue to deteriorate in the near-term in the face of the war in Ukraine and the coronavirus restrictions in China.  The ZEW Indicator of Economic Sentiment unexpectedly rose to -34.3 in May from -41.0 in April. The reading was forecast to fall to -42.0. Meanwhile, the current situation indicator fell by 5.7 points -36.5 in May. This was the third consecutive decline since the beginning of the war in Ukraine. The expected reading was -35.0.

On the inflation front, Germany's consumer price inflation hit a record high as estimated in April. The final data from Destatis showed that consumer price inflation rose to 7.4 percent in April from 7.3 percent in March. The inflation rate hit an all-time high since German reunification and also came in line with the flash estimate published on April 28. Destatis cited the development in energy prices as the one of the major cause for the record increase in overall prices. The above average increase in food prices also lifted consumer prices. Besides, Hungary's consumer price inflation accelerated sharply in April, led by higher prices for food and consumer durables. The data from the Hungarian Central Statistical Office showed that the consumer price index rose 9.5 percent year-on-year in April, following an 8.5 percent increase in March. Inflation accelerated for a fourth straight month. Price for food grew 15.6 percent annually in April and those of alcoholic beverages and tobacco rose 5.0 percent. Prices for consumer durable and services grew by 17.8 percent and 6.3 percent, respectively.

Asian market

Asian equity benchmarks, barring Shanghai Composite index, ended in red terrain during the passing week, as traders expressed concerns that more aggressive moves by the Fed and other central banks could lead to a period of stagflation or an outright recession. The Fed has resolved to continue hiking rates by 50 basis points for at least the next two meetings. Besides, concerns about the prolonged Covid-19 lockdowns in China and ongoing war in Ukraine remain.

Japanese markets ended lower by over two percent after Japan announced ban on Russian oil imports ‘in principle’ as part of a G7 campaign, despite the country’s heavy reliance on energy imports. Traders overlooked report that Japan's services sector activity expanded for the first time in four months in April, as consumer sentiment recovered after the government lifted coronavirus curbs following a decline in domestic Omicron infections. The final au Jibun Bank Japan Services Purchasing Managers' Index (PMI) rose to a seasonally adjusted 50.7 from the previous month's final of 49.4. That was also better than a 50.5 flash reading for April. Meanwhile, Japan posted a current account surplus of 2,549.3 billion yen in March, up 2.8 percent on year. That beat forecasts for a surplus of 1,752.3 billion yen and was up from 1,648.3 billion yen in February.

Bucking the trend, Chinese Shanghai Composite edge higher by over two and half percent after China's securities watchdog pledged a slew of measures to shore up confidence in the region's worst performing stock market. Some support also came after the Chinese government announced rent cuts and other aid for small businesses in a new effort to boost economic growth. Traders paid no heed towards data showing that China’s factory and consumer prices rose faster than expected in April as Covid lockdowns battered supply chains and pushed people to stockpile food. The producer price index rose 8% from a year earlier compared to 8.3% in March.