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Markets pare losses on final day of the week post RBI’s rate hike
Sep-30-2022

Extending southward journey for third straight week, Indian equity benchmarks ended the passing week with a cut of over a percentage point as traders remain concerned over on fears of a possible global recession. Markets made a pessimistic start as S&P Global Ratings projected India's economic growth at 7.3 percent in the current fiscal with downside risks and said inflation is likely to remain above RBI's upper tolerance threshold of 6 percent till the end of 2022. Traders also took a note of the Asian Development Bank’s (ADB) report stating that with economic activity still to reach pre-pandemic levels, the RBI may slow down the pace of rate hikes until next year to quell soaring inflation while supporting growth. Markets extended losses as Finance minister Nirmala Sitharaman said ‘some people do also speak that a falling rupee also helps exports. Whether it does or doesn’t, theoretically it may, but in today’s condition, with recession outside and demand not really as adequately as it should be, even a fall in the rupee may or may not help our exports. We are conscious about these basic facts’. Traders were concerned as the fourth round of the Quarterly Employment Survey (QES) released by the Labour Ministry showed that employment generation in nine non-farm sectors slowed down in the March quarter of FY22, possibly under the impact of Omicron variant of Covid-19, with additional job creation dipping to 350,000 during the quarter, from 390,000 in the preceding December quarter of the financial year. Market participants also remained concerned on report that India’s current account deficit (CAD) is expected to more than double sequentially to over $30 billion in the first quarter of financial year 2022-23 (Q1FY23) to rise above 3 per cent of gross domestic product (GDP) from $13.4 billion, or 1.5 per cent of GDP, in the previous quarter. However, markets made significant recovery on final day of trade after the Reserve Bank of India’s (RBI) in-line monetary policy action lifted sentiments. RBI hiked the repo rate by 50 basis points (bps) to 5.90% with immediate effect. It hiked the repo rate in in line with street estimations. This is the fourth rate hike by the central bank in this financial year. Besides, SDF rate adjusted to 5.65% and MSF and bank rate revised at 6.15%. Some support also came after report that S&P Global Ratings said rising rates and increased European energy insecurity are hitting growth in almost every country, but India with an estimated 7.3 per cent growth this fiscal, would be the star among emerging market economies.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 672.00 points or 1.16% to 57,426.92 during the week ended September 30, 2022. The BSE Midcap index losses 417.47 points or 1.65% to 24,853.94, while Smallcap index slipped 359.85 points or 1.25% to 28,452.91. On the sectoral front, S&P BSE Power was down by 233.75 points or 4.69% to 4,748.88, S&P BSE Metal was down by 669.94 points or 3.59% to 18,015.22, S&P BSE Realty was down by 102.24 points or 2.94% to 3,376.90, S&P BSE Auto was down by 847.87 points or 2.82% to 29,177.76 and S&P BSE Oil & Gas was down by 497.73 points or 2.61% to 18,559.11 were the top losers on the BSE sectoral front, while S&P BSE TECK was up by 257.41 points or 2.05% to 12,834.73, S&P BSE Healthcare was up by 404.73 points or 1.76% to 23,340.50, S&P BSE Information Technology was up by 353.18 points or 1.30% to 27,488.42, S&P BSE Consumer Durables was up by 39.22 points or 0.09% to 42,488.99 were the few gainers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 233.00 or 1.34% to 17,094.35. On the National Stock Exchange (NSE), Bank Nifty was down by 914.30 points or 2.31% to 38,631.95, Nifty Mid Cap 100 was down by 410.40 points or 1.32% to 30,668.30 and Nifty Next 50 was down by 1029.60 points or 2.37% to 42,385.45. On the other side, Nifty IT was up by 388.80 points or 1.46% to 26,981.15.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 35,868.40 crore and gross sales of Rs 52,129.90 crore, leading to a net outflow of Rs 16,261.50 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 2,954.67 crore against gross sales of Rs 4,845.96 crore, resulting in a net outflow of Rs 1,891.29 crore. In hybrid segment, FIIs stood as net buyers, with gross purchases of Rs 398.25 crore and gross sales of Rs 104.59 crore, leading to a net inflow of Rs 293.66 crore.

Industry and Economy

Rating agency ICRA has retained its previous growth forecast of 7.2 per cent for India for the current fiscal (FY23), aided by a revival in contact-intensive services owing to pent-up demand, and a back-ended pick-up in government and private capex. It said growth is likely to pick up to pre-Covid levels on the back of pent-up demand, even though on an annualised basis, the absolute numbers will be falling from Q1 (13.5 per cent) to a much lower level in Q2 and further down in the two remainder quarters due to the high base. The agency expects the growth momentum to lose steam and slows down to 6.5-7 per cent in Q2 and further 5-5.5 per cent each in Q3 and Q4 of FY2023 due to base effect, which is still higher the RBI forecast for these two quarters as she foresees a broad-based pick-up in private sector capex beginning from end of 2022, notwithstanding the higher-than-expected capacity utilisation of 74.5 per cent in Q4 FY22.

Outlook for the coming week

In the passing week, Indian markets ended in deep red terrain with Nifty and Sensex posting losses of more than 200 and 600 points respectively as rapidity with which central banks across the globe are hiking interest rates, investors are worried that slackening growth would push key economies into recession.

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 October 3 and S&P Global Services PMI on October 6. Auto and cement stocks will be reacting to their monthly sales numbers in the start of the week. 

Apart from capital markets there will be buzz from the primary market too, as one important IPOs lined up. Electronics Mart India has a consumer durables and electronics store under the name of 'Bajaj Electronics’ and will be entering the primary market to raise up to Rs 527 crore in a price band of Rs 56-59 per share.

On the global front, investors would be eyeing few economic data from world’s largest economy, United States (US), starting with S&P Global Manufacturing PMI Final on October 03 followed by Redbook on October 04, Balance of Trade on October 05, Initial Jobless Claims on October 06 and finally Unemployment Rate and Baker Hughes Total Rig Count on October 07.

Top Gainers

  • Cipla up by 5.00% was the top gainer on Nifty for the week - Cipla has received the Establishment Inspection Report (EIR) for its Indore plant, indicating closure of the inspection. Earlier, the United States Food and Drug Administration (USFDA) had conducted a Pre-Approval Inspection (PAI) at the Cipla’s Indore plant from June 27, 2022 to July 01, 2022. The company had received 2 observations on FDA Form 483 with respect to ANDA filed for the product to be manufactured at the said plant. There was no data integrity observation.
  • Sun Pharmaceutical Industries up by 4.48% was another top gainer on Nifty for the week - Sun Pharma’s arm -- Sun Pharma Advanced Research Company (SPARC) aims to complete the current ongoing clinical trials that were impacted due to Covid-19 pandemic. SPARC last year started to see an uptick in New Chemical Entity assets under clinical development in the patient recruitment which was hampered due to Covid-19 related challenges in the last couple of years. Several significant clinical trials are ongoing which are expected to help the company’s business.

Top Losers

  • Adani Ports & special economic zone (APSEZ) down by 13.31% was the top loser of the week on Nifty - APSEZ came under pressure due to profit booking after recent gains. Recently, HDC Bulk Terminal (HBTL), a wholly owned subsidiary of APSEZ has signed the concession agreement with Syama Prasad Mookerjee Port, Kolkata (SMPK) for mechanisation of Berth no. 2 at Haldia Port. This is in continuation to the selection of APSEZ as a successful bidder by SMPK in February. Meanwhile, APSEZ has incorporated a wholly owned subsidiary Adani Aviation Fuels.
  • Hero MotoCorp down by 8.20% was another top loser of the week on Nifty - Hero MotoCorp witnessed profit taking despite launching Xtreme 160R Stealth 2.0, further strengthening the rapidly expanding portfolio in the premium segment. Separately, it has rolled out some attractive festive season offers for its motorcycles and scooters. One can get discount benefits of up to Rs 5,000. This limited period offer will be valid from September 26 to October 5, 2022. Besides, the company will collaborate and invest $60 million in Zero Motorcycles for developing electric motorcycles.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 17,196.40 on September 26 and lowest level of 16,747.70 on September 30. On the last trading day, the Nifty closed at 17,094.35 with weekly loss of 233.00 points or 1.34 percent. For the coming week, 16,829.23 followed by 16,564.12 are likely to be good support levels for the Nifty, while the index may face resistance at 17,277.93 and further at 17,461.52 levels.

US Market

The U.S. markets ended lower during the passing week amid rising dollar. Weakness prevailed in the markets as the benchmark 10-year Treasury yield continued to climb to levels not seen in at least a decade. Concerns about higher interest rates and the outlook for the global economy continued to weigh on the markets. Cautiousness also prevailed in the markets a report released by the National Association of Realtors (NAR) showed pending home sales in the U.S. fell for the third straight month in August, with the decrease exceeding street estimates. NAR said its pending home sales index dove by 2.0 percent to 88.4 in August after falling by 0.6 percent to a revised 90.2 in July. Street had expected pending home sales to tumble by 1.4 percent compared to the 1.0 percent slump originally reported for the previous month.

Meanwhile, a report released by the Commerce Department showed a modest decrease in new orders for U.S. manufactured durable goods in the month of August. The Commerce Department said durable goods orders slipped by 0.2 percent in August after edging down by 0.1 percent in July. Street had expected durable goods orders to decline by 0.4 percent. The modest decreases seen in July and August came after durable goods orders spiked by 2.3 percent in June. The continued dip by durable goods orders was largely due to a steep drop in orders for transportation equipment, which tumbled by 1.1 percent in August after sliding by 0.7 percent in July. Orders for non-defense aircraft and parts led the way lower, plummeting by 18.5 percent in August after soaring by 12.1 percent in July.

Besides, the Commerce Department released its third estimate of U.S. economy activity in the second quarter, showing the decrease in gross domestic product was unrevised from the previous estimate. The report said real GDP fell by 0.6 percent in the second quarter, unchanged from the drop reported last month and in line with street estimates. The dip in GDP in the second quarter follows a 1.6 percent slump in the first quarter, with the two consecutive decreases signaling the U.S. economy is in a technical recession. The Commerce Department said the decrease in GDP was unrevised, as an upward revision to consumer spending was offset by a downward revision to exports. The extended decline in GDP in the second quarter reflected decreases in private inventory investment, residential fixed investment, federal government spending, and state and local government spending.

European Market

European markets ended passing week on a negative note. After a mixed start, markets remained lackluster during the week, as German business confidence declined to the lowest level in more than two years in September signaling that the economy is slipping into a recession. The survey results from the ifo Institute showed that the business confidence index fell sharply to 84.3 in September from 88.6 in August. This was the lowest since May 2020 and also below economists' forecast of 87.0. Further, Italy's non-EU trade balance turned to a deficit in August from a surplus in the previous year, as imports grew more rapidly than exports. The data from the statistical office Istat showed that the non-EU trade balance logged a deficit of EUR 5.792 billion in August versus a surplus of EUR 1.298 billion in the same month last year. In July, there was a shortfall of EUR 2.828 billion. Annual export growth accelerated from 14.2 percent in July to 22.0 percent in August.

Key indices added more losses towards end of the week, after confidence among German exporters deteriorated further in September to reach its lowest level in more than two years and the trend is likely to continue amid a slowdown in the global economy. The survey results from the ifo Institute showed that the ifo Export Expectations index slipped to -6.0 points from -2.8 points in August. This was the lowest score since May 2020. The index fell for the fourth month in a row. Besides, French consumer confidence weakened more-than-expected in September and fell back to July's 9-year low after rebounding slightly in August. The monthly survey results from the statistical office Insee showed that the consumer confidence index fell to 79.0 in September from 82.0 in August. The latest reading was the weakest since June 2013, when it was also 79.0.

On the inflation front, Spain's producer price inflation accelerated for the first time in five months in August amid surging energy prices. The data released by the statistical office INE showed that producer prices rose sharply by 41.8 percent year-over-year in August, faster than the 40.5 percent rise in July. Excluding energy, producer price inflation softened slightly to 14.4 percent from 14.6 percent in July. Further, Sweden's producer prices rose at the fastest rate in August and trade deficit increased from last year. The figures from Statistics Sweden showed that the producer price index grew 22.0 percent year-on-year in August, following a 20.4 percent rise in July. Import prices increased 31.7 percent yearly in August and rose 1.1 percent from a month ago. Export prices grew 21.1 percent annually in August and increased 2.3 percent from the previous month.

Asian Market

All the Asian markets ended in red during the passing week as traders are cautious and remained worried that efforts by central banks around the world to curb inflation may trigger a global recession. Uncertainty due to the ongoing conflict in Ukraine is also weighing on market sentiment.  Seoul stocks ended sharply lower as South Korea’s factory output contracted on month for a second month in August due to a fall in production of semiconductors and chemical items. According to data released by Statistics Korea, the seasonally adjusted mining and manufacturing output in August fell 1.8 percent from the previous month, declining for the second month in a row after a 1.3 percent contraction in July.

Chinese Shanghai Composite edged lower by over one and half percent as data showing that profits at Chinese industrial firms fell further in August amid COVID woes, a weakening yuan and a power shortage. Some pessimism also came as private sector survey showed China's factory activity contracted at a sharper pace in September as strict COVID lockdowns disrupted production and dampened sales. The Caixin/Markit manufacturing purchasing managers' index (PMI) fell more than expected to 48.1 in September from 49.5 in August, below the 50-point which marks separates growth from contraction on a monthly basis. Traders overlooked data from the National Bureau of Statistics (NBS) showed China's official manufacturing Purchasing Managers' Index (PMI) in September stood at 50.1, the first time it recovered expansion since July.  Meanwhile, the People's Bank of China injected about $24.7 billion of liquidity via repo market operations to maintain liquidity in the banking system ahead of the quarter's end.

Japanese Nikkei fell by over two and half percent following the broadly negative cues from global markets, dragged by weakness across most sectors, led by technology and financial stocks, amid growing fears of a recession and rising interest rates. Traders overlooked the Ministry of Economy, Trade and Industry (METI) stating that industrial production in Japan was up a seasonally adjusted 2.7 percent on month in August. That beat forecasts for an increase of 0.2 percent and was up from 0.8 percent in July. It also indicated that the total value of retail sales in Japan was up a seasonally adjusted 1.4 percent on month in August. That beat forecasts for an increase of 1.0 percent following the downwardly 0.7 percent gain in July (originally 0.8 percent).

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