Markets add gains for third straight week on hope of economic revival, good monsoon

It turned out to be a favorable week of trade for Indian equity benchmarks with frontline gauges extending winning streak for third straight week as traders remained hopeful of economic revival and good monsoon. Markets started the week on a very optimistic note as traders took encouragement with RBI data showing that India’s forex reserves increased by $4.23 billion to $597.509 billion for the week ended May 20 on the back of a high accretion of core currency assets. Some support also came in with report that State finances showed improvement in 2021-22 as the consolidated gross fiscal deficit (GFD) of 26 states was lower by 31.5 per cent than a year ago. Afterwards, markets participants sold some of their risky assets as traders turned anxious with India Ratings’ statement that the GST has not helped states achieve the key objective of boosting their tax revenue. The rating agency said that the data does not point to any benefits to the states in the last five years since the implementation of GST (Goods and Services Tax). Some pessimism remained among traders with private report stating that soaring prices and the subsequent hit to consumer spending and investments are likely to further dampen India’s economy, as the central bank faces a finely balanced struggle to tame inflation via rate hikes without hurting economic growth. Some concern also came amid a private report stating that India’s economy probably grew slower than previously estimated last year, with virus curbs in the final quarter seen as a drag on activity while the war in Europe has added a new inflation hurdle to recovery. Sentiments also remained dampened after the government data showed that India’s economic growth hit a four-quarter low of 4.1%, partly driven by base effect. The growth was 20.1%, 8.4%, and 5.4%, in the first, second and third quarters, respectively. However, traders found some solace in later part of the week after State Bank of India (SBI) in a research report revised India's gross domestic product (GDP) growth forecast for the financial year 2022-23 to 7.5 per cent, which is 0.20 per cent higher from its earlier projection. Markets witnessed consolidation on final day of the week, as traders opted to remain on sidelines ahead of RBI’s Monetary Policy Committee (MPC) meeting scheduled during June 6-8, 2022, where it is widely expected to go for faster, steeper interest rate hikes.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex surged 884.57 points or 1.61% to 55,769.23 during the week ended June 03, 2022. The BSE Midcap index gained 257.24 points or 1.14% to 22,774.98 and Smallcap index surged 762.57 points or 2.98% to 26,384.14. On the sectoral front, S&P BSE Realty was up by 149.04 points or 4.83% to 3,237.34, S&P BSE Information Technology was up by 1,261.21 points or 4.33% to 30,383.58, S&P BSE TECK was up by 499.23 points or 3.78% to 13,704.22, S&P BSE Capital Goods was up by 882.10 points or 3.36% to 27,122.36 and S&P BSE Oil & Gas was up by 538.92 points or 2.94% to 18,843.07 were the top gainers on the BSE sectoral front, while S&P BSE Power was down by 191.74 points or 4.48% to 4,092.59, S&P BSE Healthcare was down by 426.77 points or 1.90% to 22,045.10, S&P BSE BANKEX was down by 534.03 points or 1.30% to 40,661.65 and S&P BSE Finance was down by 35.59 points or 0.47% to 7,594.67 were the few losers on the BSE sectoral front.

NSE movement for the week

The Nifty surged 231.85 or 1.42% to 16,584.30. On the National Stock Exchange (NSE), Nifty IT was up by 1262.20 points or 4.41% to 29,903.80, Nifty Mid Cap 100 was up by 366.10 points or 1.32% to 28,023.35 and Nifty Next 50 was up by 217.95 points or 0.57% to 38,257.55. On the other side, Bank Nifty was down by 338.25 points or 0.95% to 35,275.05.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 72,527.72 crore and gross sales of Rs 75,671.77 crore, leading to a net outflow of Rs 3,144.05 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 2,926.75 crore against gross sales of Rs 1,981.82 crore, resulting in a net inflow of Rs 944.93 crore. In hybrid segment, FIIs stood as net buyers, with gross purchases of Rs 145.71 crore and gross sales of Rs 91.23 crore, leading to a net inflow of Rs 54.48 crore.

Industry and Economy

SBI Research in its latest report has projected the Indian economy to grow at 7.5 per cent in 2022-23, an upward revision of 20 basis points from its earlier estimate. SBI chief economist Soumyakanti Ghosh said ‘Given the high inflation and the subsequent upcoming rate hikes, we believe that real GDP will incrementally increase by Rs 11.1 lakh crore in FY23. This still translates into a real GDP growth of 7.5 per cent for FY23, up by 20 basis points over our previous forecast’. As per the government data, the economy grew by 8.7 per cent in FY22, net adding Rs 11.8 lakh crore in the year to Rs 147 lakh crore, the report said, adding this was however only 1.5 per cent higher than the pre-pandemic year of FY20.

Outlook for the coming week

Indian markets posted solid gains in the passing week on hopes of economic recovery and signs of good monsoon, while the Sensex was able to breach the crucial psychological level of 55,700, Nifty above its 16,550 mark. Favorable retail earnings in the US and receding FII selling also provided comfort to the domestic market in bringing down volatility.

On the economy front, market-participants would be eyeing the data of Index of Industrial Production (IIP), which is scheduled to be release on June 10. Industrial production in India grew 1.9 percent year-on-year in March of 2022, advancing from a downwardly revised 1.5 percent rise in the previous month.

Meanwhile, Reserve Bank of India (RBI) is widely expected to go for faster, steeper interest rate hikes in the upcoming Monetary Policy Committee (MPC) meeting scheduled during June 6-8, 2022. Following a surprise rate rise on May 4, several members of the Monetary Policy Committee (MPC) called for more in upcoming meetings this year to control sticky price pressures, which hit an eight-year high last month.

On the global front, investors would be eyeing few economic data from world’s largest economy, starting with Balance of Trade on June 7, followed by Consumer Credit Change, Wholesale Inventories on June 8, Initial Jobless Claims on June 9, Core Inflation Rate, Michigan Consumer Sentiment, Baker Hughes Total Rig Count on June 10.

Top Gainers

  • Mahindra & Mahindra (M&M) up by 10.63% was the top gainer on Nifty for the week - M&M gained traction on reporting 59.53% rise in its consolidated net profit at Rs 2608.13 crore for Q4FY22 as compared to Rs 1634.85 crore for Q4FY21. On standalone basis, the company has reported 5-fold jump (Y-o-Y) in its net profit at Rs 1291.94 crore for Q4FY22. Besides, M&M’s overall auto sales for May 2022 stood at 53726 vehicles. Exports for the month were at 2028 vehicles as against 1935 units in May 2021, a growth of 5%. Also, its Farm Equipment Sector has reported domestic sales of 34153 units in May 2022, a 50% growth, as against 22843 units during May 2021.
  • Coal India up by 7.50% was another top gainer on Nifty for the week - Coal India gained as its coal production increased by 30% to 54.7 million tonnes in May 2022 as against 42.1 million tonnes in May 2021. The company’s production in the April- May 2022 period increased 28.8 per cent to 108.2 million tonnes, compared with 84 million tonnes in the year-ago period. The company's offtake increased by 11.3% to 61.2 million tonnes in May, 2022, over 55 million tonnes in the corresponding month of the previous financial year. Its offtake in the April- May 2022 period also increased by 8.7% to 118.7 million tonnes over 109.2 million tonnes in the year-ago period.

Top Losers

  • Shree Cement down by 4.86% was the top loser of the week on Nifty - Cement stocks came under pressure with private report that cement stocks to underperform in the near-term, given the sustained increase in energy costs, near-term demand weakness, partial rollback of price hikes in May, thereby, weighing on company's margin in first half of FY23. Recently, the company has reported fall of 17.59% in its consolidated net profit at Rs 659.08 crore for Q4FY22 as compared to Rs 799.79 crore for the same quarter in the previous year. However, total income of the company increased by 3.36% at Rs 4501.60 crore for Q4FY22 as compared Rs 4355.22 crore for Q4FY21.
  • Bajaj Auto down by 4.79% was another top loser of the week on Nifty - Bajaj Auto was under selling pressure as it reported lower-than-expected monthly sales numbers. Bajaj Auto reported strong monthly sales in the domestic market but its total sales fell short of estimates amid weakness in exports due to a shortage of semiconductors. Bajaj Auto has reported 1.47% rise in total sales to 2,75,868 units in May as against 2,71,862 in the same month last year. Total domestic sales increased by 85% to 1,12,308 units in May as compared to 60,830 units in May 2021. Meanwhile, exports of the company stood at 1,63,560 units in May compared to 2,11,032 in the same month last year.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 16,793.85 on June 3 and lowest level of 16,438.85 on June 1. On the last trading day, the Nifty closed at 16,584.30 with weekly gain of 231.85 points or 1.42 percent. For the coming week, 16,417.48 followed by 16,250.67 are likely to be good support levels for the Nifty, while the index may face resistance at 16,772.48 and further at 16,960.67 levels.

US Market

The U.S. markets ended higher during the passing week after first-time claims for U.S. unemployment benefits unexpectedly declined in the week ended May 28th, according to a report released by the Labor Department. The report showed initial jobless claims fell to 200,000, a decrease of 11,000 from the previous week's revised level of 211,000. Street had expected jobless claims to come in unchanged compared to the 210,000 originally reported for the previous week. Meanwhile, a report released by the Institute for Supply Management (ISM) showed U.S. manufacturing activity unexpectedly expanded at a slightly faster rate in the month of May. The ISM said its manufacturing PMI inched up to 56.1 in May from 55.4 in April, with a reading above 50 indicating growth in the sector. The uptick surprised participants, who had expected the index to dip to 54.5.

Further, some support came in amid optimism that the Federal Reserve could alter its plans to aggressively raise interest rates in the light of some weak economic data. Payroll processor ADP released a report showing private sector employment increased by much less than expected in the month of May. ADP said private sector employment climbed by 128,000 jobs in May after jumping by a downwardly revised 202,000 jobs in April. Street had expected private sector employment to surge by 300,000 jobs compared to the addition of 247,000 jobs originally reported for the previous month.  A report released by the Conference Board showed a decrease in U.S. consumer confidence in the month of May. The Conference Board said its consumer confidence index dipped to 106.4 in May from an upwardly revised 108.6 in April.

The Commerce Department released a report showing factory orders rose by much less than expected in the month of April. The Commerce Department said factory orders edged up by 0.3 percent in April after jumping by a downwardly revised 1.8 percent in March. Street had expected factory orders to advance by 0.7 percent compared to the 2.2 percent surge originally reported for the previous month. The report showed durable goods orders rose by 0.5 percent compared to the previously reported 0.4 percent increase, while orders for non-durable goods crept up by 0.2 percent. The Commerce Department also said shipments of manufactured goods inched up by 0.2 percent in April after spiking by 2.2 percent in March. Inventories of manufactured goods also increased by 0.6 percent in April following a 1.4 percent jump in the previous month.

European Market

European markets ended passing week on a lower note. The start of the week was in green, as Switzerland's economy grew at a faster pace in the first quarter as the growth in manufacturing offset the weakness in services activity. The State Secretariat for Economic Affairs, or SECO, said that gross domestic product expanded 0.5 percent sequentially, following a 0.2 percent rise in the fourth quarter of 2021. This was also faster than the expected growth of 0.3 percent. The production-side showed that the recovery continued as expected, driven largely by the industrial sector. Meanwhile, parts of the service sector were held back by the most recent wave of the pandemic and the accompanying restrictions. Besides, Italy's economy expanded only at a marginal pace in the first quarter, reversing a decline estimated initially. The latest figures from the statistical office ISTAT showed that gross domestic product rose a seasonally and calendar-adjusted 0.1 percent sequentially in the March quarter, slower than the 0.7 percent increase in the previous quarter. In the flash estimate, the GDP figure was a decline of 0.2 percent.

But, markets failed to hold gains towards end of the week, after Germany retail turnover declined more than expected in April due to a record fall in food sales. The data released by Destatis showed that retail turnover decreased 5.4 percent on a monthly basis in April, reversing a 0.9 percent rise in March. Sales were forecast to drop marginally by 0.2 percent. Turnover reached the lowest level since February 2021. Food turnover decreased 7.7 percent on a monthly basis, which was the biggest fall since the series began in 1994. At the same time, non-food sales dropped 4.4 percent. Further, the Eurozone manufacturing sector grew at the slowest pace in one-and-a-half years in May amid supply shortages, high inflationary pressures and weakening demand. The final data from S&P Global showed that the final factory Purchasing Managers' Index fell to 54.6 from 55.5 in April. The score was slightly above the flash 54.4. Manufacturing new orders decreased for the first time since June 2020. Demand remained weak in May, impacted by the war in Ukraine, pandemic related-restriction and elevated prices.

On the inflation front, Italy's consumer price inflation increased more than expected in May. The preliminary estimates from the statistical office Istat showed that consumer prices increased 6.9 percent yearly in May, following a 6.0 percent rise in March. On a month-on-month basis, consumer prices rose 0.9 percent in May. The core inflation rose to 3.3 percent in May from 2.4 percent in the previous month. Besides, Switzerland's consumer price inflation rose to the highest level since September 2008. The data from the Federal Statistical Office showed that consumer prices rose 2.9 percent year-on-year in May, following a 2.5 percent increase April. A higher rate of inflation was last seen in September 2008.

Asian market

Asian equity benchmarks ended mostly in green terrain during the passing week amid easing COVID-19 restrictions in China and bets that the Fed might slow its current aggressive pace of rate hikes over the coming months. Investors awaited U.S. farm employment data for further clues about how far the Federal Reserve may tighten policy to curb price rises. Seoul stocks rose even as a private sector survey showed that growth in South Korean factory activity slowed in May as output and new export orders decreased amid supply-chain disruptions.

Japanese Nikkei edged higher by over three and half percent, as Japan takes gradual steps toward a wider reopening of its borders, with the country looking to raise daily entry cap on the number of visitor arrivals to 30,000 in July after opening up to tourists from June 10. Sentiments remained up-beat with the latest survey from Jibun Bank revealed that the services sector in Japan continued to expand in May, and at a faster rate, with a services PMI score of 52.6. That's up from 50.7 in April, and it moves further above the boom-or-bust line of 50. The survey also showed that the composite index rose to 52.3 in May from 51.1 in April. Traders also took a note of data showing that the manufacturing sector in Japan continued to expand in May, albeit at a slower pace, with a manufacturing PMI score of 53.3. That's down from 53.5 in April, although it remains above the boom-or-bust line of 50 that separates expansion from contraction.

Chinese Shanghai rose by over two percent after China's cabinet announced detailed measures to support infrastructure construction and counter economic slowdown. Some support also came as data released by the National Bureau of Statistics showed that China’s factories still struggled in May, but the slower pace of contraction suggests that the worst of the current economic fallout may be coming to an end as the country starts to ease up on its tough lockdowns. The official manufacturing purchasing managers index rose to 49.6 from 47.4 in April.