Markets stage smart recovery for the week after recent selloff

Markets ended the passing week with strong gains as traders opted to buy beaten down but fundamentally strong stocks after recent drubbing in past two weeks. The rally during the week was led by several factors including a fall in oil prices and advancement of Southwest monsoon. Key gauges made an optimistic start as traders found support with Income Tax department’s statement that the net direct tax collections till mid-June this fiscal increased 45 per cent to over Rs 3.39 lakh crore, buoyed by decent advance tax mop-up. Sentiments remained positive as member of the economic advisory council to the prime minister -- Sanjeev Sanyal said that the country's internal market is in a good position and its macroeconomic stability is in a comfortable zone despite the ravage by the pandemic. Local bourses extended gains on report that the southwest monsoon entering Madhya Pradesh, Chhattisgarh, coastal Andhra Pradesh, Odisha, west Bengal, Jharkhand and Bihar on Monday, cumulative rainfall deficiency so far has been reduced to 5% from 25% reported on June 16. The India Meteorological Department (IMD) has predicted an intense spell of rainfall along the west coast in the next few days. However, some worries came with RBI data showing that operating profit growth of listed private companies decelerated across broad sectors in the January-March quarter of 2021-22, on the back of rise in expenditure. Domestic bourses pared most of the initial gains as operating profit of manufacturing companies decelerated sharply to 7 per cent in the fourth quarter of last fiscal as against 70 per cent in the corresponding quarter of the preceding fiscal. Unabated foreign fund outflows also played spoilsport for the markets. Buying in final two days of trade mainly helped markets to end the week on higher levels as traders turned optimistic with Prime Minister Narendra Modi’s statement that the government expects the Indian economy to grow by 7.5 per cent this year. Modi also said the value of the Indian digital economy will reach $1 trillion by 2025. Traders remained energized with RBI data showing that the country's foreign exchange reserves in nominal terms, including valuation effects, rose by $30.3 billion in 2021-22 fiscal against $99.2 billion expansion in FY2020-21. Sentiments also got boost with a private report stating that the Indian economy can grow by 7-7.8 per cent this fiscal on the back of better agriculture production and a revitalised rural economy amid global headwinds mainly due to the ongoing Russia-Ukraine war.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex surged 1367.56 points or 2.66% to 52,727.98 during the week ended June 24, 2022. The BSE Midcap index gained 507.23 points or 2.38% to 21,803.16 and Smallcap index surged 388.05 points or 1.61% to 24,521.93. On the sectoral front, S&P BSE Auto was up by 1,730.49 points or 7.01% to 26,425.42, S&P BSE Consumer Durables was up by 1,636.61 points or 4.84% to 35,418.90, S&P BSE Consumer Discretionary Goods & Services was up by 234.60 points or 4.77% to 5,149.77, S&P BSE TECK was up by 486.13 points or 3.92% to 12,879.23 and S&P BSE Fast Moving Consumer Goods was up by 512.37 points or 3.86% to 13,776.13 were the top gainers on the BSE sectoral front, while S&P BSE Metal was down by 651.41 points or 4.09% to 15,276.42 were the only losers on the BSE sectoral front.

NSE movement for the week

The Nifty surged 405.75 or 2.65% to 15,699.25. On the National Stock Exchange (NSE), Bank Nifty was up by 884.40 points or 2.70% to 33,627.45, Nifty IT was up by 1045.35 points or 3.91% to 27,777.80, Nifty Mid Cap 100 was up by 571.35 points or 2.21% to 26,449.05 and Nifty Next 50 was up by 948.10 points or 2.66% to 36,616.30.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 29,132.24 crore and gross sales of Rs 43,543.68 crore, leading to a net outflow of Rs 14,411.44 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 5,059.90 crore against gross sales of Rs 1,630.75 crore, resulting in a net inflow of Rs 3,429.15 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 29.48 crore and gross sales of Rs 77.73 crore, leading to a net outflow of Rs 48.25 crore.

Industry and Economy

The finance ministry in its monthly economic review report has said that India is facing near-term challenges in managing its fiscal deficit, sustaining economic growth, reining in inflation and containing the current account deficit but the country is relatively better placed to weather these headwinds compared to other nations. It added near-term challenges need to be managed carefully without sacrificing the hard-earned macroeconomic stability. It said ‘Many countries around the world, especially developed countries, face similar challenges. India is relatively better placed to weather these challenges because of its financial sector stability and its vaccination success in enabling the economy to open up’.

Outlook for the coming week

In the passing week, Indian benchmark indices ended in green territory as sound financials of the US banks have brought a sense of optimism to the global economy.

The next week is likely to see some volatility with scheduled F&O series expiry on June 30 and traders balancing their positions going ahead for the next series. On economic front, investors will be eyeing the data of core sector growth, schedule to be release on 29 June. On the same, Government Budget Value and External Debt are also schedule to be released. External debt in India increased to a record high of $614900 million in the fourth quarter of 2021 from $603400 million in the third quarter of 2021.

Market-participants would be also be watching out S&P Global Manufacturing PMI, schedule to be release on July 01. The S&P Global India Manufacturing was little-changed to 54.6 in May 2022 from 54.7 in April.

On the global front, investors would be eyeing few economic data from world’s largest economy, United States (US), starting with Dallas Fed Manufacturing Index on June 27 followed by Redbook, Richmond Fed Manufacturing Index, Dallas Fed Services Index on June 28, GDP Growth Rate on June 29, Initial Jobless Claims, Chicago PMI on June 30 and finally ISM Manufacturing, Baker Hughes Oil Rig Count on July 1.

Top Gainers

  • Hero MotoCorp up by 9.56% was the top gainer on Nifty for the week - Hero MotoCorp is all set to make an upward revision in the ex-showroom prices of its motorcycles and scooters, with effect from July 1, 2022. In another development, Hero MotoCorp has further strengthened its commitment and operations in Turkiye with the introduction of Euro-5 compliant variants of its three globally popular products. The Xpulse 200 is already a highly appreciated motorcycle in Turkiye, while Hero MotoCorp’s scooters are well known for their quality and assurance through the five-year warranty.
  • Eicher Motors up by 8.50% was another top gainer on Nifty for the week – Most of the Automobile stocks traded higher with a private report stating that cost pressures are easing. The report said the automobile companies have taken price hikes but cost pressure is easing. Earlier, Eicher Motors’ motorcycle division has reported over 2-fold jump in sales at 63,643 units in May 2022 as compared to 27,294 motorcycles sold in May 2021. The company’s sales of models with engine capacity up to 350 cc and exceeding 350 cc stood at 53,835 units and 9,808 units, respectively, in May 2022.

Top Losers

  • UPL down by 6.26% was the top loser of the week on Nifty - UPL came under pressure after closure of buyback offer. The company bought back 13.43 million equity shares at an average price of Rs 813.92 apiece. The company has utilized Rs 1,094 crore, which represents 99.43 per cent of the maximum buyback size. Meanwhile, UPL has purchased 27,50,000 equity shares of Kerala Enviro Infrastructure (KEIL), an associate of UPL, taking its holding from 23.32% to 31.07%. Also, the company has incorporated a wholly-owned subsidiary in the name of ‘Advanta Enterprises’.
  • Tata Steel down by 5.42% was another top loser of the week on Nifty - Metal stocks reeled under pressure amid demand slowdown concerns. The increased risks of global growth slowdown, and higher inflation likely to hurt demand. Also, Tata Steel and Thyssenkrupp have lost their fight against a European Union antitrust veto of their proposed landmark joint venture, after Europe's second-highest court rejected their arguments. The two in 2019 had sought to tackle over-capacity and other challenges in the steel industry via the joint venture, which would have created Europe's second-largest steelmaker after ArcelorMittal.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 15,749.25 on June 24 and lowest level of 15,191.10 on June 20. On the last trading day, the Nifty closed at 15,699.25 with weekly gain of 405.75 points or 2.65 percent. For the coming week, 15,343.82 followed by 14,988.38 are likely to be good support levels for the Nifty, while the index may face resistance at 15,901.97 and further at 16,104.68 levels.

US Market

The U.S. markets ended higher during the passing week as traders picked up stocks at relatively reduced levels following recent weakness in the markets. Also, traders kept an eye on Federal Reserve Chair Jerome Powell’s before the House Financial Services Committee, with the Fed chief reiterating his commitment to moving expeditiously to bring inflation back down. The Fed’s plans to aggressively raise interest rates to combat inflation has led to concerns tighter monetary policy will tip the economy into a recession. Powell has acknowledged that achieving a soft landing will be very challenging due in part to factors outside of the Fed's control and noted a recession is certainly a possibility. The Fed's next monetary policy meeting is scheduled for July 26-27, with CME Group's FedWatch Tool currently indicating an 88.5 percent chance of another 75 basis point rate hike.

On the economic data front, first-time claims for U.S. unemployment benefits edged slightly lower in the week ended June 18th, according to a report released by the Labor Department. The report showed initial jobless claims dipped to 229,000, a decrease of 2,000 from the previous week's revised level of 231,000. Street had expected jobless claims to slip to 227,000 from the 229,000 originally reported for the previous week. Meanwhile, the Labor Department said the less volatile four-week moving average crept up to 223,500, an increase of 4,500 from the previous week's revised average of 219,000. The report showed continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also inched up by 5,000 to 1.315 million in the week ended June 11th.

The National Association of Realtors (NAR) released a report showing another steep drop in U.S. existing home sales in the month of May. NAR said existing home sales plunged by 3.4 percent to an annual rate of 5.41 million in May after slumping by 2.6 percent to a revised rate of 5.60 million in April. Existing home sales fell for the fourth consecutive month. Street had expected existing home sales to tumble by 3.7 percent to a rate of 5.40 million from the 5.61 million originally reported for the previous month. NAR Chief Economist Lawrence Yun said home sales have essentially returned to the levels seen in 2019 - prior to the pandemic - after two years of gangbuster performance. He added ‘Also, the market movements of single-family and condominium sales are nearly equal, possibly implying that the preference towards suburban living over city life that had been present over the past two years is fading with a return to pre-pandemic conditions.’

European Market

European markets ended passing week in red. After a positive start of the week, markets added gains, as Switzerland's exports grew for the first time in three months in May. The data from the Federal Customs Administration showed that exports climbed by a real 2.4 percent month-on-month in May, reversing a 0.2 percent fall in April. Imports rose sharply by 7.1 percent from April, when they fell by 4.2 percent. Moreover, this was the fastest monthly growth in two years. In nominal terms, exports gained 1.2 percent in May and imports surged 10.3 percent. Besides, Morale of French manufacturers improved unexpectedly in June as they were confident about past, and future production trends. The survey data from the statistical office INSEE showed that the business climate index for the manufacturing sector rose to 108 in June from 106 in May. Meanwhile, the score was forecast to fall to 10.5. The past production index improved to 15 in June from 12 in May, and the index measuring manufacturers' general production outlook for the near term recovered from -9 to -5.

But, indices cut their gains towards end of the week, after Euro area consumer confidence unexpectedly eroded in June, after a modest improvement in the previous month. The preliminary survey data from the European Commission showed that the flash consumer confidence dropped to -23.6 from -21.1 in May. Economists had forecast a score of -20.5. The reading was the lowest since April 2020, when it was 24.4. The corresponding index for the EU also dropped in June, to -24.0 from -22.2 in May. Further, the euro area current account deficit increased notably in April, largely due to the shortfalls in primary and secondary income. The European Central Bank said that the current account deficit widened to a seasonally adjusted EUR 6 billion from EUR 2 billion in March. The deficit on goods trade narrowed to EUR 3 billion from EUR 4 billion in the previous month. At the same time, the trade in services showed a surplus of EUR 12 billion but smaller than March's EUR 14 billion surplus.

On the inflation front, Germany producer price inflation rose to a fresh record high in May driven by energy prices. The data from Destatis showed that producer prices logged a double-digit growth of 33.6 percent year-on-year in May, following April's 33.5 percent increase. The rate was forecast to grow again by 33.5 percent. On a monthly basis, producer prices gained 1.6 percent after rising 2.8 percent in April. Energy prices as a whole surged 87.1 percent from the previous year. Excluding energy, producer prices advanced 16.5 percent. Besides, Sweden's producer price inflation rose at a faster rate in May. The figures from Statistics Sweden showed that the producer price index increased 24.4 percent year-on-year in May, following a 23.8 percent gain in April. In March, producer prices rose 24.5 percent. Prices rose the most in the domestic market, up 22.8 percent in May. Import prices increased 30.1 percent yearly in May and rose 0.3 percent from a month ago. Export prices grew 25.9 percent annually in May and increased 1.8 percent from the previous month.

Asian market

Asian equity benchmarks ended mixed during the passing week as a continuous decline in commodities from crude oil, to metals to cotton, helped ease fears around runaway inflation. However, US Fed Chair Jerome Powell, in his testimony before the Senate Banking Committee, again stressed that the Fed hopes to rein in the worst inflation in four decades without pushing the economy into a recession, but acknowledged that path has gotten more and more challenging.

Japanese Nikkei edged higher by more than half percent, as the Bank of Japan's April policy meeting showed many board members stressed the need to maintain the central bank's massive stimulus program to support a still-fragile economy. Some support also came as the Ministry of Internal Affairs and Communications said overall consumer prices in Japan were up 2.5 percent on year in May. That was in line with expectations and unchanged from the previous month. Traders also took a note the latest survey from Jibun Bank revealed that the manufacturing sector in Japan continued to expand in June, albeit at a slower rate, with a manufacturing PMI score of 52.7. That's down from 53.3 in May, although it remains above the boom-or-bust line of 50 that separates expansion from contraction. The survey also showed that the services index improved to 54.2 in June from 52.6 in May, while the composite index rose to 53.2from 52.3.

Chinese Shanghai edged marginally higher, as the risk appetite in the market got boosted after the People's Bank of China (PBOC) announced fresh capital injection into the banking system to keep liquidity stable. Additionally, Chinese President Xi Jinping signaled support to the country’s leading payment and fintech firms in the latest indication that Beijing is easing its regulatory crackdown on the sector. However, gains remain capped as China saw Covid-19 flare-up in cities such as Shenzhen, sparking worries about China’s uncertain recovery path.