Markets end the week in red as RBI hints for more rate hikes

Indian equity benchmarks ended the passing week with a cut of over two percentage points after Reserve Bank of India (RBI) hinted at further rate hikes, in the upcoming months. Markets made a quiet start as traders were concerned as foreign investors pulled out nearly Rs 40,000 crore from the Indian equity market in May on fears of an aggressive rate hike by US Federal Reserve that dented investor sentiments. Selling intensified as traders remained cautious with ratings and research firm Acuite Ratings & Research’s report that the expectation of the expansion of the current account deficit is not just driven by elevated global commodity prices, but is also linked to the unlocking of the economy reviving pent-up demand and improved vaccination cover aiding an organic recovery in the economy. Sentiments remained dampened as India’s central bank said that it would withdraw pandemic-era monetary stimulus and hinted at further rate hikes, in the upcoming months. Meanwhile, RBI’s Monetary Policy Committee has raised Repo Rate by 50 basis points (bps) to 4.90 per cent in its June bi-monthly meeting. Real GDP growth for FY 2022-23 is retained at 7.2%. Traders also remained anxious after RBI’s Governor Shaktikanta Das said the Ukraine-Russia war has led to globalisation of inflation and is posing new challenges, as the central bank upped the inflation projection to 6.7 per cent for current fiscal year. In April, RBI had projected retail inflation at 5.7 per cent for 2022-23. However, markets recouped some of their losses on penultimate day of the week as the commerce ministry stated that the country’s exports increased 24.18 per cent to $9.39 billion during June 1-7, 2022 on account of healthy growth in sectors like engineering, gems and jewellery and petroleum products. The exports during June 1-7, 2021 stood at $7.56 billion. Some optimism also came after India Meteorological Department said the monsoon is progressing normally and will likely reach Maharashtra in the next two days. Selling on final day of the week ensured that key indices will go home with a huge cut of over two percent as External Affairs Minister S Jaishankar said the Russia-Ukraine war has thrown up a crisis of fuel, food and fertiliser that will lead to hunger situations and have a very significant inflationary impact. Adding more pessimism, India Ratings stated that the country’s current account deficit is likely to hit a three-year high of 1.8 per cent or $43.81 billion in FY22, as against a surplus of 0.9 per cent or $23.91 billion in FY21.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 1465.79 points or 2.63% to 54,303.44 during the week ended June 10, 2022. The BSE Midcap index losses 284.66 points or 1.25% to 22,490.32, while Smallcap index slipped 526.72 points or 2.00% to 25,857.42. On the sectoral front, S&P BSE Consumer Durables was down by 1,260.04 points or 3.35% to 36,314.51, S&P BSE Information Technology was down by 844.91 points or 2.78% to 29,538.67, S&P BSE Metal was down by 496.47 points or 2.74% to 17,619.22, S&P BSE Finance was down by 202.57 points or 2.67% to 7,392.10 and S&P BSE TECK was down by 331.56 points or 2.42% to 13,372.66 were the top losers on the BSE sectoral front, while S&P BSE Auto was up by 195.90 points or 0.76% to 25,956.53, S&P BSE Oil & Gas was up by 121.53 points or 0.64% to 18,964.60 and S&P BSE PSU was up by 30.08 points or 0.36% to 8,495.44 were the few gainers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 382.50 or 2.31% to 16,201.80. On the National Stock Exchange (NSE), Bank Nifty was down by 791.25 points or 2.24% to 34,483.80, Nifty IT was down by 789.50 points or 2.64% to 29,114.30, Nifty Mid Cap 100 was down by 447.55 points or 1.60% to 27,575.80 and Nifty Next 50 was down by 600.40 points or 1.57% to 37,657.15.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 27,609.26 crore and gross sales of Rs 39,208.98 crore, leading to a net outflow of Rs 11,041.65 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 1,571.12 crore against gross sales of Rs 3,027.04 crore, resulting in a net outflow of Rs 1,455.92 crore. In hybrid segment, FIIs stood as net buyers, with gross purchases of Rs 224.92 crore and gross sales of Rs 54.50 crore, leading to a net inflow of Rs 170.42 crore.

Industry and Economy

With headwinds from rising inflation, supply chain disruptions, and geopolitical tensions offsetting buoyancy in the recovery of services consumption from the pandemic, the World Bank in its latest issue of the Global Economic Prospects has cut India's economic growth forecast for the current fiscal (FY23) to 7.5 per cent. This is the second time that the World Bank has revised its GDP growth forecast for India in the current fiscal 2022-23 (April 2022 to March 2023). In April, it had trimmed the forecast from 8.7 per cent to 8 per cent and now it is projected at 7.5 per cent.

Outlook for the coming week

The passing week turned out to be a disappointing one for Indian equity markets, which nursed heavy loss of over 2% each as investors across the globe worried about the impact of aggressive monetary policy tightening on economic growth.

On the economy front, market-participants would be eyeing the data of Consumer Price Index (CPI) which is scheduled to be release on June 13. CPI in India increased to 7.79% in April of 2022, the highest since May of 2014. The inflation stayed above the 2% to 6% tolerance limit of the central bank for the fourth month in a row.

In another major event, investors will an eye on Wholesale Price Index (WPI) data for the month of May, scheduled to be release on June 14. WPI rate in India rose to 15.08 percent in April 2022 from 14.55 percent month earlier and above market forecasts of 14.48 percent. On a monthly basis, wholesale prices increased by 2.08 percent in April, after a 2.41 percent gain in March.

On the global front, investors would be eyeing few economic data from world’s largest economy, United States (US), starting with Consumer Inflation Expectations on June 13, followed by PPI, Redbook on June 14, Retail Sales, Fed Interest Rate Decision on June 15, Philadelphia Fed Manufacturing Index, Initial Jobless Claims on June 16 and finally Industrial Production, Baker Hughes Total Rig Count on June 17.

Top Gainers

  • Oil and Natural Gas Corporation (ONGC) up by 8.00% was the top gainer on Nifty for the week - ONGC gained traction as S&P Global Ratings said riding on the back of surge in global energy prices, state-owned ONGC should have a solid base to increase investments over the next 12-18 months on account of healthy earnings. It added that improved cash flow continues to support the rating of ONGC. Separately, the company is eyeing rise of 11 per cent in crude oil production and jump of 25 per cent in natural gas output after newer discoveries in the western and eastern offshore start producing.
  • Bajaj Auto up by 5.21% was another top gainer on Nifty for the week - Bajaj Auto witnessed bargain hunting after falling in the previous week. Meanwhile, Bajaj Auto will consider a buyback of its fully paid-up equity shares. The move will be discussed in the meeting of the board of directors on June 14. The company last went for such a move in 2000, when shareholders approved the buyback of up to 18 million equity shares at a price of Rs 400 each. Bajaj has paid dividends to shareholders since FY08, with the amount going up each year: from Rs 20 per share in FY08 to Rs 140 at the end of FY22.

Top Losers

  • Shree Cement down by 11.35% was the top loser of the week on Nifty - Cement stocks remained under pressure for yet another week amid concerns over high costs and price competition. The rising price of coal and inflation is denting the margins of cement companies. Recently, the company 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.
  • Ultratech Cement down by 8.27% was another top loser of the week on Nifty - Ultratech Cement was under selling pressure amidst it announced around Rs 12,900 crore-capital expenditure (capex) plan. The stock of the largest player in the cement industry was trading at its lowest level since February 2021. On June 2, the company's board approved Rs 12,886 crore ($76/ton) of capex plan for setting up 22.6mt of new cement capacity (17% of its capacity post completion of ongoing projects). The expansion will be a mix of brownfield and greenfield capacity across the regions to cater to future growth.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 16,610.95 on June 6 and lowest level of 16,172.60 on June 10. On the last trading day, the Nifty closed at 16,201.80 with weekly loss of 382.50 points or 2.31 percent. For the coming week, 16,045.95 followed by 15,890.10 are likely to be good support levels for the Nifty, while the index may face resistance at 16,484.30 and further at 16,766.80 levels.

US Market

The U.S. markets ended lower during the passing week as investors monitored signs of a potential economic slowdown and kept an eye on the bond market. The Organisation for Economic Co-operation and Development (OECD) said the global growth is set to slow sharply this year than previously forecast as the war in Ukraine triggered a cost-of-living crisis and the zero-COVID policy of China added to supply chain disruptions. OECD said the global economy will expand 3.0 percent in 2022, which is sharply slower than the 4.5 percent projected in December. The growth rate is seen at 2.75 percent in 2023. The hardest-hit economies are in Europe, which is highly exposed to the war through energy imports as well as refugee flows. Russia's invasion of Ukraine has also damped hopes of a quick end to rising inflation from Covid19-related supply bottlenecks seen across the global economies.

As Russia and Ukraine are major suppliers in many commodity markets, the war has lifted commodity prices sharply. The OECD cautioned that without action, there is high risk of a food crisis. In the United States, GDP growth is forecast to weaken from 5.7 percent last year to 2.5 percent this year, and to 1.2 percent in 2023. The OECD observed that supply shortages, higher oil prices and a faster pace of monetary policy normalization will hold back growth to a greater extent than previously foreseen. Further, weakness also prevailed in the markets as traders looked ahead to the release of a Labor Department report on consumer price inflation. The report is expected to show that consumer prices increased by 0.7 percent in May after rising by 0.3 percent in April. Core consumer prices, which exclude food and energy prices, are expected to climb by 0.5 percent in May following a 0.6 percent advance in April.

The annual rate of consumer price growth is expected to hold at 8.3 percent, while the annual rate of core consumer price growth is expected to slow to 5.9 percent from 6.2 percent. The inflation data could have an impact on the outlook for monetary policy ahead of the Federal Reserve's decision on interest rates. Meanwhile, a report released by the Labor Department showed first-time claims for U.S. unemployment benefits rose by more than expected in the week ended June 4th. The Labor Department said initial jobless claims climbed to 229,000, an increase of 27,000 from the previous week's revised level of 202,000. Street had expected jobless claims to rise to 210,000 from the 200,000 originally reported for the previous week. With the bigger than expected increase, jobless claims reached their highest level since hitting 240,000 in the week ended January 15th. The report showed the less volatile four-week moving average also edged up to 215,000, an increase of 8,000 from the previous week's revised average of 207,000.

European Market

European markets ended passing week in deep red. The start of the week was on a higher note, as the euro area economy grew at a faster-than-estimated pace in the first quarter on positive contribution from net trade. The revised data from Eurostat showed that gross domestic product expanded 0.6 percent from the fourth quarter, when the economy had advanced 0.2 percent. The rate was revised up sharply from 0.3 percent. On a yearly basis, economic growth improved to 5.4 percent from 4.7 percent. The latest estimate was bigger than the initial estimate of 5.1 percent. Besides, Greece's economy expanded at a faster pace in the three months ended March, underpinned by strong domestic demand and investment. The preliminary figures from the Hellenic Statistical Authority showed that gross domestic product advanced a seasonally adjusted 2.3 percent sequentially in the first quarter, faster than the revised 0.8 percent rise in the fourth quarter. The annual economic growth eased to 7.0 percent in the March quarter from 8.1 percent in the December quarter. On the expenditure side, total final consumption grew 2.5 percent from the previous quarter and gross fixed capital formation increased 3.7 percent.

However, markets witnessed a sharp fall towards end of the week, after Finland's trade deficit widened in April, as imports rose more than exports. The preliminary figures from the Finnish Customs showed that the trade deficit increased to EUR 900 million in April from EUR 265 million in the same month last year. In March, the trade deficit was EUR 1.400 billion. Exports increased 22.9 percent yearly in April and imports rose 33.1 percent. Shipment to EU countries increased 33.3 percent in April and imports from them gained 18.2 percent. Exports to countries outside EU grew 10.5 percent in April and imports from those countries surged 56.4 percent. Further, Sweden's industrial production rose at a softer pace in April. The data from Statistics Sweden showed that industrial production rose 0.1 percent year-on-year in April, after a 1.0 percent growth in March.

On the inflation front, Hungary's consumer price inflation increased sharply in May, led by higher prices for food and consumer durable. The data from the Hungarian Central Statistical Office showed that the consumer price index rose 10.7 percent year-on-year in May, following a 9.5 percent increase in April. Inflation accelerated for a fifth straight month. Price for food grew 41.4 percent annually in May and those of alcoholic beverages and tobacco rose 6.4 percent. Prices for consumer durable and services grew by 11.4 percent and 6.8 percent, respectively. Besides, Dutch consumer price inflation rose at a softer pace in May. The data from the Central Bureau of Statistics showed that the consumer price index rose 8.8 percent year-on-year in May, following a 9.6 percent increase in April.

Asian market

Asian equity benchmarks ended mixed during the passing week amid rising concerns about inflation, potential interest rate hikes and slowing economic growth. The downward revisions in global growth forecasts for the current year and 2023 by the World Bank and the Organization for Economic Cooperation and Development weighed as well. The mass testing announcements in Shanghai also sparked fears of a return to stringent, prolonged lockdowns. Investors waited for cues from the European Central Bank (ECB) meeting and Friday's U.S. consumer inflation report.

Chinese Shanghai edged higher during the week as more Covid-19 related restrictions eased in Shanghai and other major cities. Sentiments remained up-beat after data showed inflation moderate in May, leaving room for authorities to ease monetary policy and release more stimulus to boost growth. National Bureau of Statistics data showed China's factory-gate inflation rose an annual 6.4 percent last month, marking the weakest pace since March 2021. Consumer inflation added 2.1 percent, unchanged from April.

Japanese Nikkei edged higher as a weakening yen boosted export stocks. Bank of Japan Governor Haruhiko Kuroda said a weak yen is beneficial for Japan’s economy if the currency’s moves are not too sharp. Some support also came amid data that showed Japan's economy contracted less than initially estimated in the first quarter.  Japan's gross domestic product contracted an annualized 0.5 percent on year in the first quarter of 2022- beating forecasts for a decline of 1.0 percent following the 3.8 percent increase in the previous three months. Traders also took a note of data showing that producer prices in Japan were up 9.1 percent on year in May. That was shy of expectations for an increase of 9.8 percent, which would have been unchanged from the previous month after a downward revision from 10.0 percent. Besides, overall bank lending in Japan was up 0.7 percent on year in May, coming in at 582.524 trillion yen. That's down from 0.9 percent in April.