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Key gauges end lower amid mixed Q4 earnings
May-19-2023

Passing week proved dismal one for Indian equity benchmarks as traders remained sidelines amid mixed earnings reported by sector majors. Markets made an optimistic start to the week following a respite in the CPI inflation, which fell to an 18-month low of 4.7% in April on the back of a high base and easing price pressures across categories, giving the central bank elbow room to maintain an extended pause on policy rates. Meanwhile, India’s inflation based on wholesale price index (WPI) turned negative for the first time since July 2020 at (-) 0.92% for the month of April 2023 as against 1.34% in March 2023, on account of fall in prices of non-food articles, coal, electricity and mineral oils. Sentiments also got boost with Reserve Bank of India Governor Shaktikanta Das’ statement that the cooling off in headline inflation to 4.7 per cent during April is ‘very satisfying’. On the very next day, key gauges took U-turn as traders turned anxious with the government data showing that India’s exports contracted by 12.7 per cent, third month in a row, to $34.66 billion in April even as the trade deficit reduced to a 20-month low of $15.24 billion. The decline in exports is mainly on account of poor demand in India’s key destinations - the Europe and the US. Markets extended losses with the India Meteorological Department (IMD) stating that a slight delay is expected in the onset of the southwest monsoon over Kerala and it is likely to arrive by June 4. Some pessimism also came amid the UN's latest report showing that prospects for a robust global economic recovery remain dim as the lingering effects of the COVID-19 pandemic carry on. The report found that risks of a prolonged period of low growth stand, amid stubborn inflation, rising interest rates, and heightened uncertainties, in addition to the ever- worsening impact of climate change. Sentiments also remain dampened with a private report stating that a cash crunch is persisting in India, pushing short-term borrowing costs above a key policy interest rate and posing risks to an economy that needs cheaper funding to sustain its recovery. Sentiments further dented after index majors ITC’s and State Bank of India’s fourth quarter earnings failed to cheer investors. Traders also remained cautious with a private report stating that the value of foreign portfolio investment (FPI) in Indian equities was at $542 billion in the March quarter of 2023, a decline of 11 per cent from the preceding year, largely due to the exodus of foreign money from the domestic market. However, buying on final day of the week helped markets to minimize losses as traders took support with S&P Global Ratings’ statement where it affirmed India's sovereign rating at 'BBB-' for the long term and ‘A-3’ for the short term, with a stable outlook, as sound economic fundamentals were expected to underpin growth over the next two to three years.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 298.22 points or 0.48% to 61,729.68 during the week ended May 19, 2023. The BSE Midcap index losses 48.48 points or 0.19% to 26,152.27, while Smallcap index increased 131.53 points or 0.44% to 29,748.14. On the sectoral front, S&P BSE Power was down by 91.51 points or 2.39% to 3,732.84, S&P BSE Oil & Gas was down by 380.32 points or 2.07% to 18,002.57, S&P BSE Consumer Durables was down by 685.63 points or 1.73% to 38,944.43, S&P BSE Healthcare was down by 362.15 points or 1.56% to 22,783.53 and S&P BSE Metal was down by 239.92 points or 1.22% to 19,435.14 were the top losers, while S&P BSE Realty was up by 46.27 points or 1.28% to 3,671.98, S&P BSE Information Technology was up by 324.43 points or 1.16% to 28,228.37, S&P BSE TECK was up by 96.56 points or 0.77% to 12,706.83 and S&P BSE BANKEX was up by 154.07 points or 0.31% to 49,922.25 were the top gainers on the BSE.

NSE movement for the week

The Nifty slipped 111.40 points or 0.61% to 18,203.40. On the National Stock Exchange (NSE), Bank Nifty was up by 175.85 points or 0.40% to 43,969.4 and Nifty IT was up by 275.25 points or 0.98% to 28,303.65. On the other side, Nifty Mid Cap 100 increased 81.90 points or 0.25% to 32,550.35 and Nifty Next 50 increased 254.95 points or 0.62% to 40,546.15.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net buyers in equity segment in the week, with gross purchases of Rs 40,900.67 crore and gross sales of Rs 33,106.96 crore, leading to a net inflow of Rs 7,793.71 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 5,443.54 crore against gross sales of Rs 4,455.02 crore, resulting in a net inflow of Rs 988.52 crore. In hybrid segment, FIIs stood as net buyers, with gross purchases of Rs 490.90 crore and gross sales of Rs 202.19 crore, leading to a net inflow of Rs 288.71 crore.

Industry and Economy

Expressing optimism over cooling off in headline inflation, the Reserve Bank of India (RBI) Governor Shaktikanta Das has said the headline inflation coming down to 4.7 per cent during April is ‘very satisfying’. He added that the release of the official data gives confidence that the ‘monetary policy is on the right track’. He further said the RBI is ‘quite optimistic and fairly confident’ about the country's 6.5 per cent real GDP growth rate in FY24 even though other analysts are not so sanguine. Admitting that there is a statistical base effect, he said one must speak to any entrepreneur to understand the growth momentum of higher sales every month. 

Outlook for the coming week

In the passing week, local equity markets displayed sluggish performance as traders evaluated some of the Q4 earning numbers from sector majors. The next week is likely to see some volatility with scheduled F&O series expiry on May 25 and traders balancing their positions going ahead for the next series. 

On the economy front, market men will be eyeing the Foreign Exchange Reserves data to be announced on May 26. Foreign Exchange Reserves in India increased to $595980 million in May 5 from $588780 million in the previous week.

In the ongoing result season, traders will be eyeing earnings of prominent companies, including Bharat Petroleum Corporation, Indiabulls Housing Finance, Shree Cement, SJVN, Ashok Leyland, Biocon, Fortis Healthcare, JSW Energy, NMDC, Cummins India, Hindalco Industries, Oil India, AIA Engineering, Vodafone Idea, Indian Energy Exchange, Page Industries, Zee Entertainment Enterprises, BEML, Bharat Heavy Electricals, City Union Bank, Grasim Industries, Karnataka Bank, Mahindra And Mahindra, Info Edge (India), Oil and Natural Gas Corporation, JK Cement among others.

On the global front, investors would be eyeing few economic data from world’s largest economy, starting with Redbook, S&P Global Services PMI, S&P Global Composite PMI, S&P Global Manufacturing PMI on May 23 followed by FOMC Minutes on May 24, Initial Jobless Claims, Kansas Fed Composite on May 25, Durable Goods Orders, Core PCE Price Index, Personal Spending, Personal Income, Michigan Consumer Sentiment, Goods Trade Balance, Baker Hughes Total Rig Count on May 26.

Top Gainers

  • Indusind Bank up by 5.10% was the top gainer on Nifty for the week - Indusind Bank traded with traction in line with peer group banking stocks amid reports of easing baking crisis in the US. As per the report, US regional bank stocks rally as deposits return the recovery and banking shares comes after Western Alliance Bank Corps reported a deposits growth of over $2 billion since April. Another private report indicated that IndusInd Bank is set to approach the IRDAI to seek licence to operate in the insurance industry. The bank expressed optimism about the non-life business.
  • Hero MotoCorp up by 4.93% was another top gainer on Nifty for the week - Hero MotoCorp traded higher amid reports that it is gearing up for highest ever model introductions this fiscal as it looks to consolidate market share especially in the premium bike segment. It plans to introduce new bikes, including the first product under the Hero MotoCorp-Harley Davidson tie-up, during the ongoing financial year. Meanwhile, the company has launched the all-new OBD-II and E20-compliant adventure motorcycle XPulse 200 4 Valve, which can run on an ethanol-blended gasoline mixture of up to 20%.
Top Losers

  • Divi's Lab down by 6.94% was the top loser of the week on Nifty - Divi's Lab witnessed selling pressure ahead of its third quarter numbers to be released on May 20, 2023. As per a private report, the company’s profit likely to be impacted due to unfavourable base last year on account of COVID sales and elevated input costs. A private report also suggested that high base of COVID drug Molnupiravir, which will be absent from Q4 and rationalisation inventory post-Covid globally will drag down the drug-maker’s top and bottom line.
  • Power Grid down by 5.97% was another top loser of the week on Nifty - Power Grid came under selling pressure ahead of its quarterly result to be out on May 19, 2023. The company, however, is expected to post higher growth on increased capacity. Meanwhile, The Jammu & Kashmir High Court has held that sales tax is not leviable on materials purchased by Power Grid Corporation from outside the state and transferred to contractors. Recently, Power Grid Corporation of India declared as successful bidder under tariff based competitive bidding to establish inter-state transmission system for Transmission System Strengthening Scheme for evacuation of power from solar energy zones in Rajasthan (8.1 GW) under Phase-II Part-E' on build, own, operate and maintain (BOOM) basis.
Technical viewpoints

During the week, CNX Nifty touched the highest level of 18,458.90 on May 15 and lowest level of 18,060.40 on May 19. On the last trading day, the Nifty closed at 18,203.40 with weekly loss of 111.40 points or 0.61 percent. For the coming week, 18,022.90 followed by 17,842.40 are likely to be good support levels for the Nifty, while the index may face resistance at 18,421.40 and further at 18,639.40 levels.

US Market

The US markets rallied during the passing week as traders cheered report that lawmakers will eventually reach an agreement on raising the U.S. debt ceiling following meeting between President Joe Biden and top congressional leaders. A statement from the White House described the meeting as “productive” and said Biden is “optimistic that there is a path to a responsible, bipartisan budget agreement.” Biden directed staff to continue to meet daily on outstanding issues, with the president cutting short an upcoming overseas trip to ensure Congress takes action by the June 1st deadline to avert default. 

On the economic front, the Labor Department released a report showing first-time claims for U.S. unemployment benefits fell by more than expected in the week ended May 13th. The initial jobless claims slid to 242,000, a decrease of 22,000 from the previous week's unrevised level of 264,000. The street had expected jobless claims to dip to 254,000. The bigger than expected drop came after jobless claims reached their highest level since the week ended October 30, 2021 in the previous week. Meanwhile, the Commerce Department released a report unexpectedly showing a significant rebound in new residential construction in the month of April. The housing starts jumped by 2.2 percent to an annual rate of 1.401 million in April after plunging by 4.5 percent to a revised rate of 1.371 million in March. The street had expected housing starts to drop to an annual rate of 1.405 million from the 1.420 million originally reported for the previous month. Further, the Commerce Department said building permits slumped by 1.5 percent to an annual rate of 1.416 million in April after tumbling by 3.0 percent to a revised rate of 1.437 million in March.

Moreover, a report released by the Federal Reserve Bank of Philadelphia showed a continued contraction in regional manufacturing in the month of May, although the pace of contraction slowed by more than expected. The Philly Fed said its diffusion index for current activity surged to a negative 10.4 in May from a negative 31.3 in April. While a negative reading still indicates a contraction in regional manufacturing activity, the street had expected the index to show a more modest recovery to a negative 19.8. The bigger than expected rebound came after the Philly Fed Index dropped to its lowest level since May 2020 in the previous month. The National Association of Realtors also released a report unexpectedly showing a steep drop in U.S. existing home sales in the month of April. 

European Market

European markets ended passing week on a higher note. After a slightly positive start of the week, markets traded lackluster during initial days, as Eurozone industrial production declined at the fastest pace in nearly one-and-and-a-half years in March, largely led by a slump in the capital goods output, and suggested that a downward revision to the first quarter economic growth was likely. The preliminary data from Eurostat showed that industrial production logged negative monthly growth of 4.1 percent in March, reversing a 1.56 percent gain in February. Besides, Germany's investor confidence turned negative in May for the first time in five months amid concerns over further interest rate hikes by the European Central Bank and the uncertainty on the global markets over worries of a US debt default. The survey results from ZEW showed that the ZEW Indicator of Economic Sentiment dropped notably to -10.7 in May from +4.1 in April. 

However, indices gained traction towards end of the week, after the euro area employment increased the most since 2021 in the first quarter despite the economy undergoing a mild growth amid the aggressive monetary policy tightening. A flash estimate published by Eurostat showed that the quarterly growth in employment doubled to 0.6 percent in the first quarter from 0.3 percent in the preceding period. Further, Italy's foreign trade balance logged its biggest surplus in twenty months in March, underpinned by a favorable trade of non-energy products. The data from the statistical office Istat showed that the trade balance for March came in at a surplus of EUR 7.5 billion versus a deficit of EUR 0.76 billion in the corresponding month last year. In February, there was a surplus of EUR 2.1 billion. Further, this was the biggest trade surplus since July 2021, when it was EUR 8.17 billion. Exports grew 4.7 percent year-over-year in March, following a 10.8 percent gain in the previous month. Nonetheless, export growth eased for the first time in more than two years.

On the inflation front, Germany's wholesale prices logged its first decline since December 2020 driven by the sharp fall in mineral oil product prices. The data published by Destatis revealed that the wholesale price index declined 0.5 percent in April from the last year, following March's 2.0 percent increase. Prices dropped for the first time since December 2020, when the index slid 1.2 percent. Prices were forecast to drop 0.7 percent in April. However, Italy's consumer price inflation increased slightly less than initially estimated in April. The preliminary data from the statistical office showed that the consumer price index, or CPI, rose 8.2 percent year-over-year in April, faster than the 7.6 percent rise in March. 

Asian Market

Asian markets ended the passing week mostly in green following the broadly positive cues from global markets amid optimism lawmakers will eventually reach an agreement on raising the U.S. debt ceiling to avoid a default. However, worries about inflation and the outlook for interest rates weighed on sentiment.

Japanese Nikkei rose by over four percent with sentiment buoyed by a weaker yen, encouraging domestic earnings and stronger-than-expected first quarter economic growth data. Japan's GDP grew a seasonally adjusted 0.4 percent sequentially in the first quarter. That beat expectations for a gain of 0.1 percent following the flat reading in the three months prior. Sentiments remained up-beat as the Ministry of Internal Affairs and Communications said overall consumer prices in Japan were up 3.5 percent on year in April. That was well above expectations for an increase of 2.5 percent and up from 3.2 percent in March. Dovish signals from the Bank of Japan and data showing a bigger-than-expected drop in Japan's massive trade deficit also boosted sentiment.

Chinese Shanghai edged higher by over half percent after data showed the country's fiscal revenue rose 11.9 percent in the first four months of 2023 from the year-ago period, up sharply from a 0.5 percent rise in January-March. However, gains remain capped as the latest readings on industrial production, retail sales and fixed asset investment missed expectations, adding to signs the recovery in the world's second largest economy might be faltering.  China's industrial output grew 5.6% in April from a year earlier, missing expectations by a large margin but accelerating from a 3.9% gain seen in March. Retail sales jumped 18.4%, missing forecasts for a 21.0% increase. Fixed asset investment expanded 4.7% in the first four months of 2023 from the same period a year earlier, versus expectations for a 5.5% rise.
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