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Weak global cues drag markets lower for second straight week
Sep-23-2022

It turned out to be a yet another feeble week of trade for Indian equity benchmarks as traders remained unenthusiastic amidst unpleasant economic outlook and weakening rupee. Weak global cues too dampened sentiments amid increase in policy rate by the US Fed and Bank of England coupled with escalation in geopolitical tensions between Russia and Ukraine. Markets made an optimistic start taking support from the finance ministry’s statement that gross direct tax collections grew 30 per cent to Rs 8.36 lakh crore till September 17 of current fiscal year on higher advance tax mop-up buoyed by the economic revival post pandemic. Some support also came as foreign investors pumped Rs 12,000 crore into the Indian equity market so far this month on hopes that global central banks, particularly the US Fed, may go slow on rate hikes as inflation starts to cool off. Markets extended gains as traders took support with a private survey report indicating that Indian consumers are concerned about rising costs but 71 per cent of them believe the economy will recover within a year. However, sentiments turned pessimistic and key gauges took U-turn after the Asian Development Bank (ADB) in an update of its flagship economic publication, Asian Development Outlook (ADO) has lowered its 2022 economic growth outlook for India, amid sluggish global demand and tightening of monetary policy to manage inflationary pressures from elevated prices for oil and other commodities. ADB forecasts growth of 7.0% for fiscal year (FY) 2022 (ending March 31, 2023). That compares with a projection of 7.5% in April. Sentiments also remain dampened after retail inflation for farm and rural workers increased to 6.94 per cent and 7.26 per cent, respectively, in August mainly due to higher prices of certain food items. In July, retail inflation for farm and rural workers stood at 6.60 per cent and 6.82 per cent respectively. Markets extended losses as sentiments weighed on with private report stating that India's headline retail inflation is expected to rise to a five-month high of 7.4% in September, with the risk of going higher if the momentum of food and vegetable prices picks up further in the rest of the month. Traders continued to remain unenthusiastic on final day of the week with ASSOCHAM’s statement that India Inc is bracing itself for yet another policy rate hike by the RBI Monetary Policy Committee in the range of 35-50 basis points as the move seems unavoidable in the wake of the global monetary tightening to limit the impact of inflation.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 741.87 points or 1.26% to 58,098.92 during the week ended September 23, 2022. The BSE Midcap index losses 286.80 points or 1.12% to 25,271.41, while Smallcap index slipped 386.63 points or 1.32% to 28,812.76. On the sectoral front, S&P BSE Power was down by 268.03 points or 5.10% to 4,982.63, S&P BSE Realty was down by 142.94 points or 3.95% to 3,479.14, S&P BSE PSU was down by 357.97 points or 3.84% to 8,953.02, S&P BSE Capital Goods was down by 985.41 points or 3.02% to 31,697.86 and S&P BSE BANKEX was down by 1,389.36 points or 2.98% to 45,280.90 were the top losers on the BSE sectoral front, while S&P BSE Fast Moving Consumer Goods was up by 580.88 points or 3.68% to 16,363.96, S&P BSE Healthcare was up by 271.49 points or 1.20% to 22,935.77, S&P BSE Auto was up by 307.90 points or 1.04% to 30,025.63 and S&P BSE Consumer Durables was up by 304.02 points or 0.72% to 42,449.77 were the few gainers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 203.50 or 1.16% to 17,327.35. On the National Stock Exchange (NSE), Bank Nifty was down by 1230.55 points or 3.02% to 39,546.25, Nifty IT was down by 114.10 points or 0.43% to 26,592.35, Nifty Mid Cap 100 was down by 416.20 points or 1.32% to 31,078.70 and Nifty Next 50 was down by 678.30 points or 1.54% to 43,415.05.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 60,621.25 crore and gross sales of Rs 64,067.62 crore, leading to a net outflow of Rs 3,446.37 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 7,076.79 crore against gross sales of Rs 2,950.82 crore, resulting in a net inflow of Rs 4,125.97 crore. In hybrid segment, FIIs stood as net buyers, with gross purchases of Rs 887.19 crore and gross sales of Rs 336.69 crore, leading to a net inflow of Rs 550.50 crore.

Industry and Economy

Expressing some cautiousness over India’s economic growth, Chief Economic Advisor (CEA) V Anantha Nageswaran has said Indian economy will grow at over 7 per cent in the current fiscal year (FY23), down from above 8 per cent of growth rate projected in January. However, he said that the economic momentum and the animal spirits are ‘unmistakable’. He said the world is still undergoing the aftereffects of Covid pandemic and the ongoing war in Europe triggered by Russia’s invasion of Ukraine, suggesting that these factors are hurting growth. The economic survey released before the annual budget in January this year had estimated FY23 growth to come at 8-8.5 per cent. The RBI had estimated the GDP to grow at 7.2 per cent, but there are some expectation of a downward revision of the estimate soon.

Outlook for the coming week

Local equity markets witnessed correction of around three percent each in the passing week. Developments at global front mainly subjugated the trade at Dalal Street, as recession worries gripped world markets after Federal Reserve officials raised interest rates by 75 bps for the third consecutive time.

The next week is likely to see some volatility with scheduled F&O series expiry on September 29 and traders balancing their positions going ahead for the next series. On the economy front traders will be eyeing the India Infrastructure Output or Consumer price index (CPI) to be released on September 30. Infrastructure output in India increased 4.5% year-on-year in July of 2022.

Traders will keep an eye on shipping related stocks as commerce ministry is likely to release the new five-year foreign trade policy (FTP) on September 29, with a view to promoting the country's outbound shipments. The current foreign trade policy (2015-20) is in force till September 30.

Meanwhile, six-member Monetary Policy Committee is scheduled to meet during September 28-30. RBI Governor Shaktikanta Das will announce the MPC decision on September 30, the last date of the meeting. In the past three policy reviews, the RBI’s rate-setting panel has raised 140 basis points in total since May this year. Currently, the repo rate, the interest rate at which the RBI lends to the commercial bank, stands at 5.40 per cent.

On the global front, investors would be eyeing few economic data from world’s largest economy, United States (US), starting with Durable Goods Orders, Redbook, New Home Sales on September 27 followed by Goods Trade Balance Adv on September 28, GDP Price Index, Initial Jobless Claims on September 29 and finally Chicago PMI, Baker Hughes Total Rig Count on September 30.

Top Gainers

  • Sun Pharmaceutical Industries up by 5.35% was the top gainer on Nifty for the week - Sun Pharma gained traction on account of value buying after recent losses. Previously, United States Food and Drug Administration (USFDA) concluded an inspection at Sun Pharmaceutical Industries’ Mohali manufacturing facility (Punjab, India) from August 3, 2022 to August 12, 2022. At the conclusion of the inspection, the USFDA issued a Form 483, with 6 observations.
  • Hindustan Unilever up by 4.75% was another top gainer on Nifty for the week - Most of the FMCG companies stocks remained on buyers radar amid expectations that the upcoming festive season to boost the industry on the back of strong demand. Separately, the private brokerages have given outperform rating to Hindustan Unilever. There are expectations that the company may get benefits of softening input cost and margins to improve in coming quarters. 

Top Losers

  • Power Grid down by 14.75% was the top loser of the week on Nifty - Power Grid Corporation came under pressure amid private report that the government is discussing a plan for Power Finance Corp. to sell its controlling stake in REC to transmission utility Power Grid. Power Finance and REC will enjoy their different exposure limits as separate companies, potentially resulting in greater project funding. India, the world’s third biggest emitter of greenhouse gases, is looking to add a record capacity of clean energy to reduce its dependence on fossil fuels.
  • Shree Cement down by 11.34% was another top loser of the week on Nifty - Most of the cement companies stocks came under pressure amid private report stating that the emergence of Ambuja Cement with aggressive new owners is negative for peers. Adani Group completed the acquisition of Ambuja Cement and ACC. Meanwhile, Gensol, an Ahmedabad-based solar advisory and EPC services provider, has commissioned a 6.7 MWp ground-mount solar project for self-consumption by Shree Cement. The plant will power Shree Cement’s cement manufacturing facility in Panipat, Haryana.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 17,919.30 on September 20 and lowest level of 17,291.65 on September 23. On the last trading day, the Nifty closed at 17,327.35 with weekly loss of 203.50 points or 1.16 percent. For the coming week, 17,106.23 followed by 16,885.12 are likely to be good support levels for the Nifty, while the index may face resistance at 17,733.88 and further at 18,140.42 levels.

US Market

The U.S. markets ended lower during the passing week after the Federal Reserve announced its highly anticipated monetary policy decision, raising interest rates by another three-quarters of a percentage point. Citing its dual goals of maximum employment and inflation at a rate of 2 percent over the longer run, the Fed decided to raise its target range for the federal funds rate by 75 basis points to 3 to 3.25 percent. The move marks the third straight 75 basis point rate hike by the Fed and lifts rates to their highest level since early 2008. With inflation remaining elevated, the Fed also said it anticipates that ongoing interest rate increases will be appropriate. Economic projections provided along with the announcement suggest Fed officials expect to raise rates to 4.4 percent by the end of the year, well above the 3.4 percent forecast in June. Fed officials expect to increase rates to 4.6 percent by the end of 2023 before eventually scaling back rates in 2024 and 2025.

The latest projections also showed Fed officials now expect GDP to inch up by just 0.2 percent in 2022 compared to the 1.7 percent jump forecast in June. The median forecast for GDP growth in 2023 was also lowered to 1.2 percent from 1.7 percent in June. GDP is expected to grow by 1.7 percent in 2024 and by 1.8 percent in 2025. Further, weakness also prevailed in the markets with potentially signaling a recession, the Conference Board released a report showing its index of leading U.S. economic indicators declined for the sixth consecutive month in August. The Conference Board said its leading economic index fell by 0.3 percent in August after sliding by a revised 0.5 percent in July. Street had expected the leading economic index to come in unchanged compared to the 0.4 percent drop originally reported for the previous month.

Besides, the Labor Department released a report showing an uptick in jobless claims in the week ended September 17th. The report showed initial jobless claims inched up to 213,000, an increase of 5,000 from the previous week's revised level of 208,000. Street had expected jobless claims to edge up to 218,000 from the 213,000 originally reported for the previous week. Meanwhile, after reporting sharp decreases in U.S. existing home sales over the past several months, the National Association of Realtors (NAR) released a report showing existing home sales edged down by much less than expected in the month of August. NAR said existing home sales declined for the seventh consecutive month but dipped by a relatively modest 0.4 percent to an annual rate of 4.80 million in August after plummeting by 5.7 percent to a revised rate of 4.82 million in July. Street had expected existing home sales to tumble by 2.3 percent to an annual rate of 4.70 million from the 4.81 million originally reported for the previous month.

European Market

European counters ended the passing week in red terrain amid concerns about a possible global recession. Traders remained worried after Federal Reserve officials raised rates by 75 basis points for the third consecutive meting and signaled even more aggressive hikes than investors had envisioned in the months ahead to cool stubbornly high inflation. Sentiments also remain dampened after S&P Global’s Eurozone manufacturing purchasing managers’ index fell to 48.5 in September from 49.6 a month earlier. Also, the downturn in British businesses deepened this month because of soaring costs and faltering demand. The S&P Global/CIPS flash Composite Purchasing Managers' Index (PMI) fell to 48.4 from 49.6 in August. Traders also remained focused on escalating geopolitical tensions after Russian President Vladimir Putin announced the partial mobilization of his country's military.

On the economic front, the euro area current account balance showed the biggest deficit since late 2008. The current account registered an unexpected deficit of EUR 19.86 billion in July, in contrast to a surplus of EUR 4.24 billion in June. Economists had forecast a surplus of EUR 5.3 billion. Moreover, data from Destatis showed Germany’s producer price inflation hit a fresh record high in August driven by energy prices. Producer prices registered an annual increase of 45.8% in August, faster than the 37.2% rise in July. The rate was forecast to ease slightly to 37.1%. Energy prices soared 139% in August from the last year. Excluding energy, producer prices were up 14%. On a monthly basis, producer prices gained 7.9%, the highest on record, from 5.3% in July. The street had expected inflation to ease sharply to 1.6%.

Meanwhile, Switzerland’s economy is expected to grow less than previously estimated this year and next, as the economic prospects are hampered by a tense energy situation and sharp price increases, especially in Europe. The expert group of the federal government forecast gross domestic product to grow 2% this year instead of the 2.6% growth estimated previously in June. Likewise, the projection for next year was downgraded notably to 1.1% from 1.9% in the summer forecast. Switzerland’s exports rebounded strongly in August, after falling for the first time in four months in July. Exports increased by a real 2.1% month-on-month in August, reversing a 3.6% fall in July. Imports also climbed 1.3% from July, when they fell by 3.3%. In nominal terms, both exports and imports grew by 1.4% and 1.5%, respectively, in August from a month ago.

Asian Market

All the Asian markets ended in red during the passing week following the broadly negative cues from global markets, amid continuing concerns about the impending recession and the global economic outlook following the recent aggressive interest rate hikes by the US Fed and other major central banks. The Fed's economic projections suggest further aggressive interest rates in the final two meetings of the year, as the central bank continues its aggressive efforts to combat elevated inflation. Fears over China's slowdown and Russia's warning to escalate the war in Ukraine also spooked markets.

Japanese Nikkei fell by one and half percent as data showed consumer price inflation in the country jumped in August to 3.0 percent, its highest level since November 1991 due to increased pressures on the economy from high commodity prices and a softening yen. Sentiments remained down-beat even as the Bank of Japan held interest rates at ultra-low levels and maintained its dovish outlook to support economic growth. Meanwhile, the Ministry of Internal Affairs and Communications said overall consumer prices in Japan were up 3.0 percent on year in August. That exceeded expectations for 2.9 percent and was up from 2.6 percent in July.

Chinese Shanghai Composite edged lower by over half percent, on lingering concerns over the economic impact of China's zero-COVID policy. Some concern also came with a private report cutting its China 2023 annual growth forecast further to 4.3 percent from 5.1 percent in light of ongoing COVID woes.  Adding to the pessimism, the Asian Development Bank (ADB) cut its economic growth forecast for China to 3.3% for 2022 from the previous forecast of a 5.0% expansion, while ADB also cut its growth forecast for developing Asian economies to 4.3% this year from a previous projection of a 5.2% expansion amid the continued rise in inflation in the region. However, losses remain capped as the People's Bank of China injected liquidity and cut its 14-day reverse repo rates to revive credit demand and prop up the sputtering economy.
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