A nifty break above the trading range, upside seen at 17,500-17,800
After three months of consecutive decline, equity markets rallied sharply in July’22. Nifty and Sensex gained about 9% each while the Midcap index gained 12%. Sentiments turned positive on hopes the U.S. Fed will slow down its pace of interest rate hikes at its upcoming meetings.
However, the unexpected decline in US GDP for the second consecutive quarter signals the U.S. economy is in a technical recession.
FIIs selling intensity has come down significantly in the past few days and they have turned net buyers recently. For the month, they sold equities worth Rs 7614 crores. DIIs bought equities worth Rs 10,546 crore for the month (which is lower) after buying aggressively for the past 8 months.
The Indian rupee stabilized after crossing the USD 80 mark. On long-term charts, prices have tested the long-term resistance line of the rising channels and hence expect some consolidation in the coming week. We expect USDINR to remain range bound between 78.5-80.5 at least for 3-4 weeks.
The most important event of the week
The US Fed meeting outcome was in line with expectations. The US Fed hiked its policy rate by 75 bps in its latest meeting and the rate now stands in the range of 2.5%-2.75%.
The FOMC statement noted that inflation remains elevated and labor market conditions remain tight thus necessitating the rate action, even though economic activity appears to have slowed down.
Stock In News
Tata Motors reported consolidated revenue of Rs719.4bn, up 8.3% YoY but down 8.3% QoQ. JLR revenue declined by 11.3% YoY and 7.6% QoQ due to lower volume. JLR wholesales were down 15% YoY and 6% QoQ while retails came in flat QoQ due to chip shortage issues, the slower ramp-up of new models (RR and RR Sport), and lockdown in China.
The management expects a sustained and accelerated turnaround in profitability and market share gains in PV, led by new model launches, cost-cutting initiatives, and strong customer response. On the E-mobility side, the company is growing from strength to strength with new model launches, network expansion, and investment in charging infra. EVs contribute ~7.4% to the PV product mix.
Bajaj Finance and Bajaj Finserv
Bajaj Finance and Bajaj Finserv gained sharply after declaring strong quarterly results. Bajaj Finance reported net profit growth of 159% YoY, led by strong AUM growth and margin expansion. AUM increased by 28.3% YoY on the back of a ~45% YoY jump in disbursements.
Customer acquisition was at a record high, implying an annual run-rate of >10mn. The management expects a credit cost of 1.35-1.45% in FY23. Bajaj Finserv reported a consolidated PAT of Rs. 1,346 crores, an increase of ~38% YoY, aided by strong revenue from operations. For FY22, PAT grew by 2% YoY to Rs. 4,557 crores.
Revenue grew strong by ~23% YoY in Q4FY22. It was primarily aided by strong growth in the lending business and robust performance in life premium offtake. Management opined that business conditions improved significantly in Q4FY2022.
Maruti Suzuki India reported revenue of Rs 26,500 crores for 1QFY23, which was ahead of market expectation, driven by higher ASPs (+4% QoQ) while volume declined by 4% QoQ, impacted by the persistent chip shortage issue.
The management indicated that the company lost 51k in volumes due to a chip shortage. The management indicated that softening commodity prices and a depreciating Yen will improve margins going ahead.
L&T’s Q1FY23 results were largely buoyant with E&C business performance being in line with the estimate. PAT at Rs 1700 crore (up 45% YoY) was marginally below estimates. Consolidated revenue/EBITDA grew 22.2%/24.8% YoY with EBITDA margin +20bp YoY to 11%.
Order inflows grew 57% YoY to Rs 41800 crore with an order backlog at Rs 3.6 trillion (+12%YoY, 3.2x E&C revenue). FY23 guidance maintained at 12-15% revenue/order inflow growth with E&C margins of 9.5%.
Sugar stocks were in focus with a report that the Centre is expected to allow an additional 1.2 million tonnes (MT) of sugar exports in the 2021-22 season, which will end in September, over and above the 10 MT already fixed, due to higher-than-anticipated domestic production.
SBI Life Insurance rallied on strong Q1 earnings. The company reported a 17.78% YoY rise in net profit at Rs 262.85 crore for the June quarter compared with Rs 223.16 crore in the corresponding quarter last year.
Telecom Industry Stocks
Telecom industry stocks were in action as India’s first 5G auction received bids worth Rs 1.49 trillion on day two, as aggressive bidding across bands by players like Reliance Jio and Bharti Airtel pushed the sale over to the third day.
In other updates, Despite the ongoing pandemic and global developments, India received the highest annual FDI inflows of $84,835 million in FY 21-22 overtaking last year’s FDI by $2.87 billion. Earlier, FDI inflows increased from $74,391 million in FY 19-20 to $81,973 million in FY 20-21.
The International Monetary Fund (IMF) slashed India’s growth forecast for 2022-23 (FY23) by 80 bps to 7.4%, citing less favorable external conditions and rapid policy tightening by the central bank.
Market Outlook For The Coming Week
For the coming week, the RBI Policy meeting on August 3 will be in focus. An aggressive rate hike by Fed is feeding expectations that the RBI may also front load its rate hikes. We believe that the MPC may hike rates by only 25 bps (followed by another 25 bps rate hikes in the next two meetings), instead of a front-loaded hike of 50 bps or higher.
The inflation trajectory has evolved much in line with RBI’s projections and is likely to moderate in the coming quarters. Softening oil prices and a stabilizing currency will also help ease pressure on the inflation outlook.
Earnings announcements by India Inc. will remain to be watched closely and would continue to trigger stock-specific volatility. ITC, Lupin, Britannia, GAIL, HPCL, M&M, and Titan are some of the key earnings announcements.
Auto industry stocks will be in the limelight as the companies will declare their July monthly sales numbers from August 1. Passenger vehicle sales are expected to be robust in July, driven by a large order book and production ramp-up, while commercial vehicle volumes may remain in an uptrend.
Coming to the market outlook, the Nifty has clearly broken out of the trading range and has surpassed the psychological level of 17,000. The trend is looking up currently and we may soon hit the 17,500-17,800 mark with volatility along the way.
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