Bulls strengthen grip on Dalal Street as Fed signals slower rate hikes

It turned out to be a fabulous week of trade for Indian equity benchmarks with frontline gauges garnering weekly gains over two and a half percentage points to settle above their crucial 57,500 (Sensex) and 17,150 (Nifty) levels, as sentiment was buoyed by Fed chief Jerome Powell’s statement that he did not believe that the US economy was in recession, citing a strong labour market. He said future hikes would be guided by data. Markets started the week on pessimistic note as sentiments remain dampened with India Ratings’ report stated that the banks are unlikely to take a big hit on profitability this quarter due to rising bond yields, which may eat up 5.3 per cent (Rs 11,790 crore) of their net income in the worst-case scenario. It also said that in the worst-case scenario, banks may see a profit erosion of 2.6 per cent of their pre-provisioning operating profit and 5.3 per cent of their post-tax profit from treasury losses in Q1. Markets extended losses as traders got anxious with Minister of State for Finance Pankaj Chaudhary’s statement that Central government's total liabilities are seen rising to Rs 155.33 lakh crore in FY23. However, markets took U-turn from thereon on back of positive cues from global market after positive outcome from Fed meeting. Traders also took encouragement with the Reserve Bank of India (RBI) report showed that digital payments across the country registered a growth of nearly 29 per cent in a year through March 2022. The RBI's digital payment index (RBI-DPI) stood at 349.3 in March 2022 against 270.59 in March 2021. Key indices extended gains after the Ministry of Commerce & Industry in its latest report showed that Singapore (27.01%) and USA (17.94%) have emerged as top 2 sourcing nations in FDI equity flows into India in FY2021-22 followed by Mauritius (15.98%), Netherland (7.86%) and Switzerland (7.31%). Some optimism also came from the Ministry of Commerce & Industry stated that the overall (merchandise plus services) exports increased from $52.8 billion in June 2021 to $64.9 billion in June 2022.  The overall (merchandise plus services) imports increased from $52.9 billion in June 2021 to $82.4 billion in June 2022. Rally on final day to the week helped markets to recapture respective psychological levels. Sentiments remained positive, amid a private report stating that India received the highest aid for trade in 2020 at $2.7 billion from developed countries even as the receipts declined during the pandemic year compared to $3.9 billion received in 2019.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex surged 1498.02 points or 2.67% to 57,570.25 during the week ended July 29, 2022. The BSE Midcap index gained 390.53 points or 1.65% to 24,050.90 and Smallcap index surged 282.97 points or 1.06% to 27,056.38. On the sectoral front, S&P BSE Metal was up by 1,370.62 points or 8.15% to 18,189.93, S&P BSE Finance was up by 251.94 points or 3.22% to 8,077.66, S&P BSE Oil & Gas was up by 493.82 points or 2.67% to 18,999.02, S&P BSE Information Technology was up by 758.89 points or 2.64% to 29,488.38 and S&P BSE TECK was up by 343.71 points or 2.63% to 13,429.02 were the top gainers on the BSE sectoral front, while S&P BSE Auto was down by 234.47 points or 0.81% to 28,728.64 were the only losers on the BSE sectoral front.

NSE movement for the week

The Nifty surged 438.80 or 2.62% to 17,158.25. On the National Stock Exchange (NSE), Bank Nifty was up by 752.45 points or 2.05% to 37,491.40, Nifty IT was up by 984.15 points or 3.49% to 29,152.30, Nifty Mid Cap 100 was up by 586.40 points or 2.02% to 29,634.25 and Nifty Next 50 was up by 741.15 points or 1.85% to 40,906.15.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net buyers in equity segment in the week, with gross purchases of Rs 39,981.61 crore and gross sales of Rs 36,092.09 crore, leading to a net inflow of Rs 3,889.52 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 3,065.97 crore against gross sales of Rs 5,914.24 crore, resulting in a net outflow of Rs 2,848.27 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 29.20 crore and gross sales of Rs 110.30 crore, leading to a net outflow of Rs 81.10 crore.

Industry and Economy

The International Monetary Fund (IMF) in its World Economic Outlook update July 2022 has cut India's growth rate by 0.8 percentage point to 7.4 per cent for fiscal year 2022, reflecting ‘mainly less favourable external conditions and more rapid policy tightening’. In April, the IMF had projected a ‘fairly robust’ growth of 8.2 per cent for India in 2022. The report said India’s 7.4 per cent GDP growth for fiscal year 2022 is the second highest growth projection after Saudi Arabia’s 7.6 per cent. India, whose GDP was projected at 8.7 per cent in 2021, will see economic growth slow down to 6.1 per cent in fiscal year 2023.

Outlook for the coming week

Indian markets continued its jubilation mood in the passing week, as there was hope across the global markets as Fed states that it will slow the pace of rate increases at some point to assess the impact of higher rates on economy and inflation.

The coming week is going to be very crucial as it’s the start of the new month and there will be lots of macroeconomic data to guide the markets. S&P Global Manufacturing will be released on August 1 and S&P Global Services PMI on August 3. Auto and cement stocks will be reacting to their monthly sales numbers in the start of the week. 

Apart from the economy, traders will be waiting for the Reserve Bank of India (RBI) announcement of bi-monthly monetary policy review from August 3-5, 2022. In line with the global trend of monetary policy tightening to cool off inflation, the apex bank is likely to hike the repo rate by 35 basis points.

Functioning of parliament’s monsoon session's progress will be watched and traders will be anxious whether the government is able to pass the Insolvency and Bankruptcy Code (Amendment) Bill to strengthen the Insolvency and Bankruptcy Code by introducing provisions on cross-border insolvency and certain other amendments for a time-bound resolution of stressed assets while maximising their value.

Earnings will be in focus next week too, and traders will be watching some important results announcements during next week, Bank of Baroda, MCX, Barbeque-Nation Hospitality, Castrol India, ITC, UPL, Zomato, Bosch, Siemens, Adani Power, Godrej Consumer Products, Vodafone Idea, InterGlobe Aviation, Inox Leisure, Lupin, Adani Enterprises, BHEL, Britannia Industries, Dabur India, Gail (India), Mahindra & Mahindra, Muthoot Capital Services, Nykaa, Petronet LNG, Titan Company etc among others.

On the global front from the US, investors will be eyeing the data of S&P Global Manufacturing PMI Final on August 01, followed by JOLTs Job Openings on August 02, S&P Global Services PMI Final, Factory Orders on August 03, Balance of Trade, Initial Jobless Claims on August 04 and finally Unemployment Rate and Baker Hughes Total Rig Count on August 05.

Top Gainers

  • Bajaj Finserv up by 18.33% was the top gainer on Nifty for the week - Bajaj Finserv gained traction after reporting a 57 per cent jump in net profit at Rs 1,309 crore in the first quarter ended June 30, on healthy earnings by its subsidiary companies. In the year-ago period, the company had posted a net profit of Rs 833 crore. The company's consolidated total income during April-June period of 2022-23 was up 14 per cent to Rs 15,888 crore. The company’s consolidated assets under management (AUM) crossed a milestone of Rs 2,00,000 crore during this period and stood at Rs 2,04,018 crore.
  • Tata Steel up by 15.17% was another top gainer on Nifty for the week - Shares of Tata Steel gained after they turned ex-stock split in ratio of 1:10. The shareholders received 10 shares for each share they were holding or having the delivery in their account as of June 28. Separately, Tata Steel is eyeing Rs 8,000 crore revenue from its new materials business which includes graphene, fibre reinforced polymers and medical materials such as hydroxyapatite and collagen. Also, Tata Steel inked a pact with a Bengaluru-based startup for drone-based mining solutions for effective mine management.

Top Losers

  • Dr. Reddy's Laboratories down by 6.42% was the top loser of the week on Nifty - Dr. Reddy's Laboratories witnessed profit booking post Q1 numbers. The company reported 2-fold jump in its consolidated profit after tax for Q1FY23 at Rs 1,187.6 crore against Rs 570.8 crore in the same quarter a year ago, backed by substantial rise in other income. Meanwhile, Dr Reddy’s Lab has launched Bortezomib for Injection, used to treat certain types of cancer, in the US market. The company has launched the product after getting approval from the US Food and Drug Administration (USFDA).
  • Bajaj Auto down by 3.51% was another top loser of the week on Nifty - Bajaj Auto came under pressure after reporting a marginal fall of 0.58% in its consolidated net profit at Rs 1,163.33 crore for Q1FY23 as compared to Rs 1,170.17 crore for Q1FY22. However, total income of the company increased by 7.90% at Rs 8,324.54 crore for Q1FY23 as compared Rs 7,715.34 crore for the corresponding quarter previous year. On standalone basis, the company has reported a rise of 10.57% in its net profit at Rs 1,173.30 crore for Q1FY23 as compared to Rs 1,061.18 crore for Q1FY22.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 17,172.80 on July 29 and lowest level of 16,438.75 on July 27. On the last trading day, the Nifty closed at 17,158.25 with weekly gain of 438.80 points or 2.62 percent. For the coming week, 16,673.73 followed by 16,189.22 are likely to be good support levels for the Nifty, while the index may face resistance at 17,407.78 and further at 17,657.32 levels.

US Market

The U.S. markets ended higher during the passing week following the Federal Reserve's monetary policy decision. The Federal Reserve raised interest rates by 75 basis points, as expected. The Fed said it decided to raise the target range for the federal funds rate to 2.25 to 2.50 percent in an effort to achieve its dual goals of maximum employment and inflation at a rate of 2 percent over the longer run. The latest rate hike follows another 75 basis point increase in rates last month and marks the fourth straight central bank meeting that has resulted in a rate hike. The Fed reiterated that it anticipates that ongoing increases in the target range will be appropriate. The decision to continue raising interest comes even though the Fed acknowledged that recent indicators of spending and production have softened, leading to concerns about a potential recession.

The Fed highlighted continued strength in the labor market and noted that inflation has remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Fed Chair Jerome Powell said the central bank's strong commitment to reducing inflation but hinted at a slowdown in the pace of rate hikes at future meetings. Further, some support also came in after reporting modest increases in first-time claims for U.S. unemployment benefits over the three previous weeks, the Labor Department released a report showing a slight pullback in initial jobless claims in the week ended July 23rd. The report showed initial jobless claims edged down to 256,000, a decrease of 5,000 from the previous week's revised level of 261,000.

Meanwhile, reflecting a sharp increase in orders for transportation equipment, the Commerce Department released a report showing an unexpected surge in new orders for U.S. manufactured durable goods in the month of June. The Commerce Department said durable goods orders shot up by 1.9 percent in June after climbing by 0.8 percent in May. The continued increase surprised participants, who had expected durable goods orders to dip by 0.4 percent. Besides, traders overlooked report that U.S. economic activity unexpectedly saw a continued contraction in the second quarter of 2022, according to a report released by the Commerce Department. The Commerce Department said real gross domestic product decreased by 0.9 percent in the second quarter after slumping by 1.6 percent in the first quarter.

European Market

European markets ended passing week on a strong note. After a positive start, markets remained higher during the week, as Spain's unemployment rate decreased more-than-expected in the three months ended June. The data published by the statistical office INE showed that the unemployment rate fell to 12.48 percent in the second quarter from 13.65 percent in the first quarter. In the same period last year, the jobless rate was 15.26 percent. The number of unemployed people decreased by 255,300 to 2.919 million in the June quarter. At the same time, the number of employed increased by 383,300 from the previous quarter to 20.47 million. Employment climbed by 796,400 from a year ago. Employment in services grew 320,200 and by 79,500 in industry. Employment in construction and agriculture rose by 21,900 and 38,400.

Key indices extended their gains towards end of the week, after Sweden's economic growth improved in the three months ended June. The preliminary figures from Statistics Sweden showed that gross domestic product grew 4.2 percent year-on-year in the second quarter, faster than the 3.0 percent expansion in the first quarter. Further, Finland's jobless rate decreased sharply and employment increased in June. The figures from Statistics Finland showed that the jobless rate fell to 6.8 percent in June from 7.9 percent in the previous month. A year ago, the rate was 7.6 percent. The unemployment rate trend for the 15 to 74 age group declined to 6.4 percent in June from 7.8 percent in the same month last year. In May, the unemployment rate was 6.3 percent. The number of unemployed persons decreased by 21,000 to 180,000 in June from 217,000 in the last year.

On the inflation front, France's producer price inflation moderated marginally in June, though it remained strong overall. The data from the statistical office Insee showed that industrial producer price inflation in the home market dropped to 27.0 percent in June from 27.1 percent in May. The 135.0 percent surge in coke and refined petroleum product prices was largely responsible for June's high inflation rate. Producer prices in the foreign market grew 20.2 percent annually in June and, total producer price inflation rose slightly to 25.0 percent from 24.9 percent in May. Besides, Sweden's producer price inflation accelerated for the second straight month in June. The figures from Statistics Sweden showed that the producer price index increased 25.6 percent year-on-year in June, faster than the 24.4 percent gain in May.

Asian market

All the Asian equity indices, barring Nikkei composite index, ended in green during the passing week as trader sentiment remained positive on hopes the U.S. Fed will slow down its pace of interest rate hikes at its upcoming meetings. News of new Covid-19 cases in China dropping to the lowest level in more than a week aided market sentiment. However, the unexpected decline in US GDP for the second consecutive quarter signals the U.S. economy is in a technical recession. Seoul stocks ended higher after data showed South Korean economic growth unexpectedly picked up in the second quarter as strong consumption on eased Covid-19 restrictions offset poor exports, supporting the case for further central bank interest rate hikes.

Shanghai Composite edged marginally higher after reports that government authorities plan to establish a bailout fund for certain property developers. Additionally, the optimism over Chinese economic health after Beijing announced to launch a real estate fund worth up to CNY 300 billion to stem the wilting property sector, also lifted investor sentiments. However, gains remain capped as China's leaders effectively acknowledged the struggling economy won't hit its official 5.5% growth target this year and said they will try to prop up sagging consumer demand but will stick to strict anti-COVID-19 tactics that disrupted manufacturing and trade.

However, Japanese Nikkei edged marginally lower as the Ministry of Internal Affairs and Communications (MIAC) said the jobless rate in Japan came in at a seasonally adjusted 2.6 percent in June. That missed expectations for 2.5 percent, although it was unchanged from the May reading.  Some concern also came as the Ministry of Economy, Trade and Industry (METI) stating that the value of retail sales in June was down a seasonally adjusted 1.4 percent on month in June. However, the METI said that industrial production in Japan was up a seasonally adjusted 8.9 percent on month in June. That beat forecasts for an increase of 3.7 percent following the 7.5 percent contraction in May.