Markets witness massacre on global growth fear

It turned out to be a nightmarish week of trade for Indian equity benchmarks with frontline gauges hitting 52 week low and key gauges went home with a huge cut of five and a half percent. Bears rattled bulls throughout the week as markets kept hitting fresh 52 week lows on each day of weekly trading amid recession fears globally. Markets made a pessimistic start amid reports that Chief Economic Advisor V Anantha Nageswaran citing the IMF forecast that the Indian economy would cross $5 trillion by 2026-27, leader P Chidambaram said the goal of a USD 5 trillion GDP appears to be a case of 'shifting goalposts' as the original target year was 2023-24. Sentiments remain dampened as retail inflation stayed above the Reserve Bank’s upper tolerance level of 6 per cent for the fifth month in a row, though it eased to 7.04 per cent in May from April's near-eight-year high of 7.79 percent, mainly on account of softening food and fuel prices as the government as well as the RBI stepped in to control spiralling price rise by way of duty cuts and repo rate hike. Traders were concerned with continued selling by foreign investors. Meanwhile, India’s wholesale price index (WPI) based inflation rate rose to the highest level in the current 2011-12 series at 15.88% in May 2022 as against 15.08% in April. The number has remained in double digits for the fourteenth consecutive month. Cautiousness prevailed in the markets in late afternoon deals, after data showing that India's trade deficit widened to a record $24.29 billion in May 2022 from $6.53 billion in the same month last year due to a sharp jump in the country's imports. The merchandise trade deficit in May 2022 is the highest ever monthly gap. On a year-on-year basis, it has surged by 271.96 per cent. Some anxiety also came after credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has said that the sharp rise in the interest rate is likely to affect the volume in non-priority sector lending (PSL) securitisation in the near term, unlike that of PSL transactions, which are more driven by regulatory requirements. Sentiments remained negative on final day of the week as RBI Governor Shaktikanta Das has said that big tech's play in finance poses systemic concerns like overleverage. Besides, RBI Governor said that loan recovery agents using harsh methods like calling up at odd hours, foul language unacceptable.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 2943.02 points or 5.42% to 51,360.42 during the week ended June 17, 2022. The BSE Midcap index losses 1194.39 points or 5.31% to 21,295.93, while Smallcap index slipped 1723.54 points or 6.67% to 24,133.88. On the sectoral front, S&P BSE Metal was down by 1,691.39 points or 9.60% to 15,927.83, S&P BSE Oil & Gas was down by 1,766.57 points or 9.32% to 17,198.03, S&P BSE Information Technology was down by 2,373.04 points or 8.03% to 27,165.63, S&P BSE PSU was down by 658.64 points or 7.75% to 7,836.80 and S&P BSE TECK was down by 979.56 points or 7.33% to 12,393.10 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 908.30 or 5.61% to 15,293.50. On the National Stock Exchange (NSE), Bank Nifty was down by 1740.75 points or 5.05% to 32,743.05, Nifty IT was down by 2381.85 points or 8.18% to 26,732.45, Nifty Mid Cap 100 was down by 1698.10 points or 6.16% to 25,877.70 and Nifty Next 50 was down by 1988.95 points or 5.28% to 35,668.20.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 21,322.01 crore and gross sales of Rs 38,863.36 crore, leading to a net outflow of Rs 17,541.35 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 1,737.44 crore against gross sales of Rs 3,641.61 crore, resulting in a net outflow of Rs 1,904.17 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 57.48 crore and gross sales of Rs 85.77 crore, leading to a net outflow of Rs 28.29 crore.

Industry and Economy

State Bank of India (SBI) research in its latest report 'Ecowrap' has said that the Reserve Bank of India (RBI) is much ahead of the curve in containing inflation, which appeared to have peaked, though it may go for an interest rate hike in August and October. After rising to a 95-month (almost 8 years) high of 7.79 per cent in April, Consumer Price Index (CPI) based inflation moderated to 7.04 per cent in May. Core CPI also moderated in May to 6.09 per cent compared to 6.97 per cent in April, as per report. In recent times, there have been commentaries that have questioned whether RBI has been behind the curve in controlling inflation.

Outlook for the coming week

Local bourses drawing bearish cues from the global markets suffered with massive losses of over 5% each amid recession fears following moves by central banks around the globe to control rising inflation after the Federal Reserve’s largest rate hike since 1994. Meanwhile, India’s WPI based inflation rate rose to the highest level in the current 2011-12 series at 15.88% in May 2022 as against 15.08% in April, also spooked the sentiment at Dalal Street.

In economic releases, traders will be eyeing the Consumer price index for Industrial Workers for the month of May, slated to be released on June 20. Market men will be eyeing the Foreign Exchange Reserves data to be announced on June 24. Foreign Exchange Reserves in India decreased to $601060 million in June 3 from $601360 million in the previous week. Meanwhile, trend in investment by foreign institutional investors and the movement of rupee against the dollar will be also be closely watched by the investors.

Meanwhile, PSBs stocks will be in focus as Finance Minister Nirmala Sitharaman is all set to evaluate bad loans of Rs 100 crore or more in a meeting on June 20. Also, government will take look on buisness performance, credit growth and capital raising plans.

On the global front, investors would be eyeing few economic data from world’s largest economy, United States (US), starting with Chicago Fed National Activity Index on June 21, followed by Initial Jobless Claims, Kansas Fed Composite Index on June 23, Michigan Consumer Sentiment Final, New Home Sales on June 24.

Top Gainers

  • Apollo Hospital Enterprise up by 0.85% was the top gainer on Nifty for the week - Apollo Hospital Enterprise remained the sole gainer for the week on NSE in the worst hit market. Last month, the company reported 33.02% rise in its standalone net profit at Rs 153.67 crore for the quarter ended March 31, 2022 as compared to Rs 115.52 crore for the same quarter in the previous year. Total income of the company increased by 10.57% at Rs 1439.39 crore for Q4FY22 as compared Rs 1301.83 crore for the corresponding quarter previous year. Meanwhile, Apollo Hospitals Chennai, the flagship hospital of the Apollo Hospitals Group announced the successful completion of a procedure using the SENTINEL Cerebral Protection System, a new technology shown to help protect patients from the risk of stroke during a minimally invasive heart valve procedure.

Top Losers

  • Hindalco Industries down by 16.52% was the top loser of the week on Nifty - Most of the metal stocks melt on the bourses during the week in line with the weakness in global metal markets amid reports that Fed is likely to raise interest rates steadily for the rest of 2022. Recently, in a report, Moody’s Investor Services said ‘Prices for copper, zinc, nickel and aluminium reflect low inventories and supply risk related to Russia. Supply, which was tight even before disruptions from the military conflict, will remain constrained.’
  • Tech Mahindra down by 15.24% was another top loser of the week on Nifty - Most of the IT stocks traded under pressure amid recession fears after US Fed Chairman Jerome Powell announced rate hike of 75 bps, biggest since 1994. US market plays dominant role in the India’s company’s balance sheet. Meanwhile, Tech Mahindra has entered into a strategic partnership with Indosat Ooredoo Hutchison (IOH), visioning to become the most preferred digital telco of Indonesia, to jointly explore business development prospects and innovative enterprise-grade digital solutions across Industry 4.0, Cloud, Data, and 5G Networks.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 15,886.15 on June 13 and lowest level of 15,183.40 on June 17. On the last trading day, the Nifty closed at 15,293.50 with weekly loss of 908.30 points or 5.61 percent. For the coming week, 15,022.55 followed by 14,751.60 are likely to be good support levels for the Nifty, while the index may face resistance at 15,725.30 and further at 16,157.10 levels.

US Market

The U.S. markets ended lower during the passing week on concerns of monetary policy action by central banks around the world may trigger a global recession. The Federal Reserve announced the biggest increase in interest rates in almost thirty years. The Fed revealed that it has decided to raise the target rate for the federal funds rate by 75 basis points to 1.50 to 1.75 percent, marking the biggest rate hike since 1994. The widely expected move by the Fed comes as a recent report from the Labor Department showed consumer price inflation at the fastest annual rate in forty years. Citing its goals of maximum employment and inflation at a rate of 2 percent over the longer run, the Fed also indicated that further rate hikes are likely to be appropriate. The Fed also said it will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.

In its assessment of the U.S. economy, the Fed said overall economic activity appears to have picked up after edging down in the first quarter. The central bank described recent jobs gains as robust and noted the unemployment rate has remained low. The Fed said Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. Further, weakness also prevailed in the markets after a report released by the Commerce Department showed new residential construction in the U.S. plunged by much more than expected in the month of May. The Commerce Department said housing starts tumbled by 14.4 percent to an annual rate of 1.549 million in May after jumping by 5.5 percent to a revised rate of 1.810 million in April. Street had expected housing starts to decrease by 1.3 percent to an annual rate of 1.701 million from the 1.724 million originally reported for the previous month.

Manufacturing activity in the Philadelphia region saw a modest contraction in the month of June, according to a report released by the Federal Reserve Bank of Philadelphia. The Philly Fed said its current general activity index dropped to a negative 3.3 in June from a positive 2.6 in May. The negative reading indicates the first contraction in regional manufacturing activity since May of 2020. The decrease came as a surprise to participants, who had expected the current general activity index to rise to a positive 5.5. Meanwhile, the Labor Department released a report showing a modest decrease in first-time claims for U.S. unemployment benefits in the week ended June 11th. The report showed initial jobless claims edged down to 229,000, a decrease of 3,000 from the previous week's revised level of 232,000. Street had expected jobless claims to dip to 220,000 from the 229,000 originally reported for the previous week.

European Market

European markets ended passing week in deep red. The start of the week was on a lower note, as the UK economy shrank for the second straight month in April after services, construction and production contributed negatively for the first time in more than a year. The Office for National Statistics said that gross domestic product fell unexpectedly by 0.3 percent on month, faster than the 0.1 percent drop in March. This was the second consecutive contraction. GDP was forecast to grow 0.1 percent. On the production-side, services declined 0.3 percent on month, which was the main contributor to April's 0.3 percent fall in GDP. Traders overlooked reports that Italy's unemployment rate declined in the three months ended March. The data published by the statistical office Istat showed that the seasonally adjusted jobless rate dropped to 8.6 percent in the first quarter from 9.1 percent in the previous quarter. In the corresponding period last year, the unemployment rate was 10.5 percent. The number of unemployed people totaled 214,300 in the March quarter, down by 5.0 percent compared to the December quarter. The inactivity rate among the 15 to 64 age group eased to 34.7 percent from 34.8 percent.

Markets extended their losses towards end of the week, after the euro area trade deficit increased sharply to a record high in April driven by high energy prices. The data from Eurostat showed that the trade gap widened to EUR 31.7 billion from EUR 17.8 billion in March. This was the biggest shortfall since 1999. Exports logged a monthly growth of 1.5 percent, following March's 1.0 percent increase. At the same time, growth in imports accelerated to 7.1 percent from 3.2 percent. On an unadjusted basis, the trade balance showed a deficit of EUR 32.4 billion compared to a surplus of EUR 14.9 billion in the previous year. Further, Spain's foreign trade deficit increased notably in April from a year ago, as imports grew much faster than exports. The preliminary data from the Economy Ministry showed that the trade deficit rose to EUR 6.4 billion in April from EUR 1.3 billion in the corresponding month last year.

On the inflation front, Eurozone inflation accelerated to a fresh record high in May driven by surging energy prices. The final data from Eurostat showed that inflation rose to 8.1 percent in May, in line with flash estimate, from 7.4 percent in April. A year earlier, the rate was 2.0 percent. Core inflation that excludes energy, food, alcohol and tobacco, increased to 3.8 percent from 3.5 percent in the previous month. The core rate also came in line with the estimate published on May 31. Besides, Italy's consumer price inflation increased less than initially estimated in May. The final estimates from the statistical office Istat showed that consumer prices increased 6.8 percent yearly in May, following a 6.0 percent rise in March. In the initial estimate, inflation was 6.9 percent. Core inflation rose to 3.2 percent in May from 2.4 percent in the previous month, while in the initial estimate, core inflation was 3.3 percent. On a month-on-month basis, consumer prices rose 0.8 percent in May. According to the initial estimate, prices increased 0.9 percent.

Asian market

Asian equity benchmarks ended mostly in red during the passing week, following the broadly negative cues from global markets, amid rising concerns of a possible recession in the foreseeable future due to aggressive policy tightening by central banks around the world. Central banks in Switzerland, England and Taiwan, among others, also decided to hike rates to fight soaring inflation. Investors also continued to fret about the impact of surging inflation on economic growth and corporate earnings. Seoul stocks lost ground after the government reported the country's unemployment rate ticked up 0.1 percentage point to 2.8 percent in May.

Japanese Nikkei edged lower by over five percent as the country's central bank wrapped up a two-day meeting with no major changes to its ultra-low interest rates. Traders overlooked the Cabinet Office stating that the value of core machine orders in Japan spiked a seasonally adjusted 10.8 percent in April, coming in at 963.0 billion yen. That blew away expectations for a decline of 1.5 percent following the 7.1 percent jump in March. On a yearly basis, core machine orders surged 19.0 percent - again topping forecasts for an increase of 5.3 percent following the 7.6 percent gain in the previous month.

However, Chinese Shanghai edged marginally higher after China's cabinet pledged more policy steps to help the world's second-largest economy recover from the COVID-19 pandemic. Some support also came after a slew of Chinese data topped expectations. Chinese factory activity rebounded slightly in May, retail sales fell less than expected in the month and fixed asset investment for the January to May period topped expectations due to the relaxation of pandemic-related restrictions.