Markets fall on global cues; US Fed meeting in focus in the coming week.
Benchmark indices witnessed a sharp sell-off during the week and the Nifty slipped below the 17,000 level for the first time in over five months, taking cues from weak global markets. The turmoil in the US banking space with the failure of Silicon Valley Bank (SVB) and the closure of New York-based Signature Bank dampened investor sentiment. Weakness aggravated further after woes at Credit Suisse trigged concerns about a banking crisis. However, later during the week, investors heaved a sigh of relief at the news that a large group of banks have infused cash into U.S. lender First Republic Bank and Swiss National Bank providing a lifeline to Credit Suisse. Nifty managed to close at the 17100 mark on short covering.
For the week, the Nifty ended higher by 1.8 pct while the Nifty Midcap and the Nifty Smallcap indices fell by 2 pct and 2.5 pct respectively. FIIs were net sellers to the tune of Rs 79.51 bn and DIIs were net buyers to the tune of Rs 92.3 bn.
Gold surged to an 11-month high and ended the week near USD 1993.7 an oz, up 6.7 to USD 1,993 an oz. Brent Crude fell over a 15-month low. WTI crude oil prices fell 13 pct in the week gone by to around $66 per barrel. Brent traded near USD 72.5 a bbl, down from the previous week’s USD 82.78 a bbl. Oil prices are now at their lowest levels since December 2021 and marked the sharpest weekly decline this year. OPEC+ members said they expect the oil market will stabilize, attributing this week’s price weakness to financial drivers rather than any supply and demand imbalance.
Over the weekend, UBS Group AG agreed to buy Credit Suisse Group AG in a deal aimed at containing a crisis of confidence in financial systems and markets. Moreover, global central banks, including the Bank of England, Japan, Fed, and Swiss Bank announced they would boost the flow of US dollars through the global financial system. Last Friday, the People’s Bank of China surprised by reducing the reserve ratio by 25 bps to support adequate liquidity in the banking systems.
On the macroeconomic front, India’s wholesale price index, or WPI, rose 3.85 pct YoY in February, slower than the 4.73 pct rise in January. Economists had expected inflation to ease to 4.00 pct. India’s CPI, advanced 6.44 pct on a yearly basis in February, slower than the 6.52 pct increase seen in January.
Stocks/Sector in Spotlight
- IndusInd Bank – The stock fell about 11 pct after Zee Ltd. clarified that the report on repayment of USD 10 mn to IndusInd Bank was’ speculative’. It said that it is exploring several strategies, including settlement, in relation to the ongoing dispute mentioned in the news report. IndusInd Bank approached the bankruptcy court in February to initiate insolvency proceedings against Zee Ltd.
- Steel stocks – The government is planning to introduce the second edition of the PLI scheme for specialty steel to boost the production of value-added steel in the country. This will bring in an additional investment of Rs 300 bn in the domestic steel sector, leading to a capacity addition of 25 MTPA.
- TCS- Managing Director & CEO of the Company Rajesh Gopinathan decided to step down after a successful stint for the last 6 years to pursue his other interests. Gopinathan will continue with the company till 15 September 2023 to provide transition and support to his successor.
- KPIT Technologies announced its partnership with Honda to realize the journey of Honda’s Software-Defined Mobility (SDM). With Honda’s next-generation software architecture and control-safety technology and KPIT’s deep domain & software expertise in the areas of Autonomous Driving, Vehicle Electrification, In-Vehicle Infotainment systems, and Platform Software, Honda will continue to provide various services and enhanced value to customers around the world in the future.
- Lupin- The US Food and Drug Administration (USFDA) completed an inspection of Lupin’s Bioresearch Centre in Pune, India, and closed without any observation. Lupin Bioresearch Centre conducts BA/BE, PK/PD, In-vitro BE, and biosimilar studies.
- Paras Defence and Space Technologies entered into an MOU (Memorandum of Understanding) on 14 March 2023 with CONTROP Precision Technologies (CONTROP), Israel with the intent to create new opportunities and expand both parties’ business in the Indian and Global Defence sector. To support the MOU objectives, the parties intend to form a Joint Venture Company in India for manufacturing Electro-Optic Systems for various applications, all in accordance with the Government of India’s Make in India initiative.
International News
- The US producer price index for final demand slipped by 0.1 pct in February after rising by a downwardly revised 0.3 pct in January. Economists had expected producer prices to increase by 0.3 pct compared to the 0.7 pct advance originally reported for the previous month.
- US retail sales fell by 0.4 pct in February after spiking by an upwardly revised 3.2 pct in January. Economists had expected retail sales to decrease by 0.3 pct compared to the 3.0 pct surge originally reported for the previous month.
- The US producer price index for final demand slipped by 0.1 pct in February after rising by a downwardly revised 0.3 pct in January. Economists had expected producer prices to increase by 0.3 pct compared to the 0.7 pct advance originally reported for the previous month.
- ECB raised the three key interest rates by 50 bps, with this interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.50 pct, 3.75 pct, and 3.00 pct.
Mutual Funds Industry Update
MF inflow in equities crosses Rs 1.5-trn for the second straight fiscal
Domestic mutual funds (MFs) have kept their faith in the Indian stock market despite multiple headwinds all through 2022-23 (Fy23), with their net flows into equities crossing the Rs 1.5-trillion mark for the second consecutive financial year. MFs pumped a net Rs 1.53 trillion into equities till March 1, 2023, as compared to Rs 1.72 trillion in FY22. Since FY15, MFs have been net buyers of equities, except in FY21, when they sold a net Rs 1.21 trillion. In the nine financial years between FY15 and FY23, they have pumped in a massive Rs 6.90 trillion in the Indian equity market. Foreign portfolio investors (FPIs), on the other hand, have recorded a net outflow of Rs 36,538 crore in the equity segment so far in FY23. This comes after a dismal FY22, when they pulled out Rs 1.42 trillion from the Indian equity market, the NSDL data shows.
UTI Mutual Fund launches UTI Long Duration Fund
UTI Mutual Fund (UTI) has launched UTI Long Duration Fund, an open-ended debt scheme that will invest in debt and money market instruments with the portfolio Macaulay Duration is above seven years. The scheme will have a relatively high-interest rate risk and relatively low credit risk. The New Fund Offer (NFO) is open for subscription and will close on March 15. The scheme aims to generate optimal returns with adequate liquidity by investing in a portfolio of debt and money market instruments.
Outlook Week Ahead
For this week, markets are expected to remain highly volatile. Investors’ focus will shift to the Federal Reserve policy meeting outcome on March 22nd. According to the CME FedWatch, the Fed funds futures market puts the probability of a 25-bps interest-rate increase at its March 22 meeting at 79 pct. The probability of no hike lands at 21 pct. US Fed commentary will be important rather than the hike in the interest rate or the pause of the rate hike. However, investors feel that more may be needed to be done to restore confidence in the banking system. Also, the Bank of England (BoE) policy decision is on Thursday, March 23rd.
Meanwhile, the two biggest positive catalysts namely Brent crude oil prices fell sharply to around USD 72 per barrel, and secondly, the expectation of a smaller rate hike by the US Fed and even a small probability of no rate hike- these factors could pull markets. Moreover, a short covering may not be ruled out as FII short position stands at nearly 89 pct in the market which is also almost near to the reading which was witnessed during the Covid period when Nifty was at 15,200 zones. We are positive for defense, paints, capital goods, chemicals and select consumption stocks.
Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.
