Market stabilizes after a steep fall, Q2 earnings season, and Commodity trends dictate trend.
Markets posted third straight weekly gains on the back of strong global market cues and broad-based buying in all sectoral indices. Sentiments got a boost as the Reserve Bank of India (RBI) announced a series of measures to attract foreign flows in a bid to protect the local currency amid depleting foreign exchange reserves.
Global cues were supportive as traders digested the latest batch of minutes from the US Fed’s latest monetary policy meeting, which showed the central bank remains committed to bringing down inflation. The Nifty has ended up by 3% for the week while the midcap index has gained 4% for the week.
Oil prices after making lifetime highs in the post-pandemic time have finally now cooled off. Brent crude prices after peaking at USD 138 in the month of March 2022 have been going through a correction pattern since then with a lower price range recently seen at USD 97 in the month of April 2022.
Brent prices have the potential to form a marginally lower low below USD 97 before a fresh bullish momentum begins. For now, it is great news for India to be one of the largest consumers and importers of international oil, this will be of a great positive impact on the credit deficit of the country.
While inflation continues to remain high globally, there is no denying that the growth of MoM inflation has declined. In major economies like the USA, inflation has somewhat stabilized between 8.3% to 8.6% between March ’22 to June ’22 period.
Also, in Europe inflation is expected to peak at 8.05% to 8.6% level. India has also shown a similar trend with inflation stabilizing between 6% to 7% during the period of Jan ’22 to May ’22.
| Country | Feb ’22 | March ’22 | April ’22 | May ’22 |
| USA | 7.87% | 8.54% | 8.25% | 8.58% |
| Europe | 5.87% | 7.44% | 7.44% | 8.05% |
| India | 6.1% | 7.0% | 7.8% | 7.0% |
The second important factor affecting global markets is the commodity segment. Severe supply constraints & demand shocks caused due to Covid and Russia – Ukraine war had made the global market go into a freefall mode. However, these effects have been absorbed and conditions are improving now. Most of the major commodities like steel, oil, natural gas, etc have cooled off from the top.
| Commodity (as of 07/07/2022) | All-Time High (as of 07/07/2022) | Current Price (as of 07/07/2022) |
| Crude | 120$/barrel | 103$/barrel |
| Steel | 5800 Rs/ Kg | 4260 Rs/ Kg |
| Wheat | 1264 $/Bu | 838$/Bu |
The rupee weakened further to hit a low of 79.4 against the dollar. RBI took measures to add some stability to the rupee. USDINR for the week ended with a major bullish white candle after USDINR crossed the psychological barrier and entered in the potential resistance zone of 79-79.5.
The gains in USDINR from here on may not be significant in immediate terms as prices may consolidate around current levels for 4-6 weeks. On the downside, major support is seen at 78.40 and hence we may see a broader range of 78.4-79.5 in the coming days.
Stock specific action
M&M
M&M extended gains during the week after it announced the incorporation of a wholly-owned subsidiary to undertake its four-wheel passenger electric vehicles business. British international Investment has agreed to invest up to Rs 1925 crore in the form of compulsory convertible instruments at a valuation of up to Rs 70,070 crore in this arm (50% of the market cap of M&M).
Bajaj Finance
Bajaj Finance in its Q1 Business update said that its core assets under management (AUM) grew to Rs 204,000 crore as of June 2022 compared to Rs 156,115 crore as of June 2021 registering a core AUM growth of 31% or approximately Rs 11,900 crore. Overall deposits book increased by 22% to Rs 34,100 crore in Q1FY23 compared to Rs 27,972 crore in Q1FY22.
Titan
Titan rallied 10% after it reported Q1 business which showed that its sales in the April-June quarter were up nearly three-fold on a YoY basis. The jewelry division, which contributes around 85% of its revenue, reported 207% growth and added 19 new stores during the quarter, taking the total count to 463. Titan’s watches & wearables division achieved its highest ever quarterly revenue in Q1FY23 growing 158% YoY with healthy growth witnessed across all brands and products.
Nifty FMCG
The Nifty FMCG index advanced three weeks in a row. A host of FMCG companies like Marico, Godrej Consumer, HUL, Britannia, etc. showed good upward momentum as their major input cost commodity – Palm Oil – prices corrected sharply this week. The effect of which was seen across the segment as the benchmark Nifty FMCG was one of the top gainers with a weekly gain of 5.5%. Cooling of Palm Oil prices will provide a better margin cushion to FMCG companies and may also result in better margin performance in the coming quarters.
On the macro-economic data front, India’s service sector growth accelerated unexpectedly in June to remain at its highest level in more than eleven years, as output and new orders grew at an accelerated rate amid improving demand conditions, survey results from S& P Global showed. The services PMI Index climbed to 59.2 in June from 58.9 in May.
Market Outlook For Next Week
The coming week will see the markets reacting to the Q1FY23 results of TCS which were in line with expectations. In CC terms Revenue reported 15.5% YoY growth. The company reported a strong order book of US$8.2bn which remained flat YoY but maintained a comfortable level.
Book to Bill ratio came at 1.2x. TCS reported an Operating margin of 23.1% in Q4FY22 which was a sequential drop of 190 bps and lower than our expectations. Client Metrics remained strong: YoY 9 new clients added to the 100Mn+ band YoY; 19 clients added to the $50Mn+ band.
Other major results that will be out this week are Avenue Supermarts, HCL Tech, Mindtree, ACC, L&T Infotech, Tata Elxsi, and L&T Technology Services.
Some of the key macro data that will be declared in the coming week are IIP for May on 12 July along with CPI inflation data on the same day. On 14 July, WPI inflation will be unveiled. Globally, China will announce inflation data on 9 July 2022 and IIP data on 15 July. The US will announce inflation data on 13 July.
Markets have confirmed a breakout from the key levels of 16,000. We expect the rally to continue in the coming week and expect markets to break past 17,000 levels. There has been a major shift in the sectoral dynamics in the past few weeks and whenever a rally in the market is contributed by gains in banking stocks, it is more likely to turn sustainable and is likely to trigger a swift rally of 20-23% in the near term. One can Add to the existing position.
Disclaimer: The views shared in blogs are based on personal opinions and do not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Making an investment using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.