Nifty breaks down from the 17,800-18,200 range; Union Budget in focus
Markets were corrected last week after a failed attempt to close above 18130 and were followed by Nifty declining over 2 pct while Bank Nifty tanked more than 5 pct. After spending a lot of time in a defined range of 17800 – 18200, Nifty has given a breakdown below key support of 17800 and now trading at near-immediate support of 17500 level.
The fall was mainly led by Adani Group stocks after a Research report by U.S based short seller who claimed that there is severe market manipulation and accounting fraud in the Group companies. The global markets however outperformed the Indian markets and ended on a positive note. For the week, the Nifty ended lower by 2.4 pct to 17,604 levels and the Nifty Midcap 100 and Nifty Smallcap 100 fell by about 3 pct each. On the institutional activity front, FIIs were net sellers to the tune of Rs 93.49 bn, and DIIs were net buyers to the tune of Rs 72.08 bn.
Crude Oil prices remained rangebound with positive bias amid better-than-expected US GDP data in the fourth quarter of 2022. For the week, crude ended near USD 86.66 a bbl, down from USD 87.63 a bbl. The dollar index gained which capped the upside for gold. Gold prices ended near USD 1929 an ounce.
USDINR for the week ended with gains of around 0.5 pct leading to a bullish engulfing line pattern on the weekly candlestick chart as FIIs increased selling in equity markets due to the controversial report on Adani Group. The USDINR has taken strong support from the 81 zone due to heavy selling by FIIs in equity markets which may force the USDINR to visit levels of 83 in the coming week. The overall outlook on USDINR remains positive with a three-month forward target seen at 85. We expect the rupee to face severe weakness after Brent crude prices cross 90 mark.
Stocks/Sector in Spotlight
- Adani Group stocks were in the limelight for the entire week after a report by U.S short sellers raising concern over the debt positions of Adani group companies and the use of tax havens. Listed companies of Adani Group lost a combined USD 48 billion in market capitalization, with U.S. bonds of Adani firms also falling. The 98-page report highlights several issues such as Financial Red Flags, Incompetent Auditors, Fake and Unreliable Foreign Investors, and Family Holdings & Related Party transactions. The report points out that the independent auditor of Adani Enterprise and Adani Total gas is a tiny firm called Shah Dhandharia & Co. 5 out of 5 FIIs invested in the Adani group have 97 pct of assets concentrated in Adani Stocks. The report says that 5 of 7 key listed companies have reported ‘current ratios’ below 1, indicating near-term liquidity pressure and so on. These allegations have been denied by the Adani Group.
- Banking stocks saw selling pressure after fears of exposure to Adani Group companies. The exposure of private banks is 0.3 pct of FY24 loans and 1.5 pct of FY24 networth. For PSU banks, the exposure is 0.7 pct of FY24 loans and 6 pct of FY24 networth.
- Bajaj Auto reported better-than-expected operational performance for Q3FY2023, led by higher average sales realizations, improved US Dollar realization, and a better product mix. Revenue grew by 3.3 pct and EBITDA grew by 29.5 pct while PAT was up 22.8 pct to Rs 14.91 bn. Bajaj Auto is aiming to expand its EV business and indicating a launch of an electric 3-wheeler in the near term.
- Tata Motors’ shares reacted positively after its consolidated Q3FY23 results beat expectations, led by strong operational performance, across its key verticals. JLR’s order book remained at a record high of 2,15,000 units, with 74 pct shares of the profitable model. Tata Motors’ focus on EVs continues to grow multifold in Q3FY23; electric CVs are getting ready for the next leg of growth. Management aims to deliver positive EBIT margin and free cash flow (FCF) in FY2023.
- Maruti Suzuki reported net revenue of Rs 290 bn (+25 pct YoY, – 2 pctQoQ). Its Q3 wholesales stood at 466k units (+8 pct YoY, -10 pct QoQ). Realization increased 16 pct YoY and 8 pct QoQ owing to a better mix. EBITDA margin came in at 9.8 pct, up 300 bps YoY, +50 bps QoQ. Adj. PAT for the quarter was Rs 23.5 bn (+2.3x YoY, +14 pct QoQ). The pending order book as at Dec’22 stands at c.363k+ units of which c.119k units are for the recently launched Grand Vitara and new Brezza.
- Cipla reported a top line of Rs 58 bn (up 6 pct YoY and flattish QoQ) which was driven by continued traction in the One-India business and differentiated US portfolio. Q3FY23 EBITDA at Rs 14 bn with a growth of 14.3 pct YoY and 8.1 pct QoQ, and margin at 24.2 pct (up 176bps YoY and 188bps sequentially) was impacted to a certain extent due to higher R&D spend.
- Axis Bank NII at Rs 114 bn grew 32 pct YoY/10.6 pctQoQ including an item of Rs 1.5 bn recovery on restructured NPA account. GNPA/NNPA was steady QoQ at 2.5 pct/0.5 pct owing to higher write-off, while PCR improved QoQ from 79.9 pct to 80.8 pct. Asset quality has been steady, as recoveries were lower leading to higher net slippages at Rs 17 bn, while write-offs were a tad higher at Rs 16.5 bn. PAT at Rs 58.5 bn was higher by 4 pct.
International News
- US new home sales surged by 2.3 pct to an annual rate of 616,000 in December after climbing by 0.7 pct to a downwardly revised rate of 602,000 in November. Economists had expected new home sales to tumble by 3.6 pct to an annual rate of 617,000 from the 640,000 originally reported for the previous month.
- Eurozone business activity made a surprise return to growth in January, according to the S&P Global survey – the latest sign that the downturn in the bloc may not be as deep as feared.
- Meanwhile, Japanese inflation data showed nationwide core consumer prices rose by an annual 4 pct in December, the fastest inflation rate since 1981.
- US real Gross Domestic Product shot up by 2.9 pct in the fourth quarter after spiking by 3.2 pct in the third quarter. Economists had expected GDP to jump by 2.6 pct.
Mutual Funds Industry Update
Whiteoak Capital Mutual Fund launches Balanced Advantage Fund
Whiteoak Capital Mutual Fund today announced the launch of its new fund offer (NFO) – ‘WhiteOak Capital Balanced Advantage Fund’. The NFO will be open from January 20 to February 3rd. This is an open-ended dynamic asset allocation scheme investing in equities (65-100%), arbitrage (0-50%), and debt/cash in the range of 0-35% with a weight of net equities in the range of 30-80%. The scheme will be benchmarked against BSE Sensex TRI.
Tata Mutual Fund launches Tata Multicap Fund
Tata Asset Management has launched the Tata Multicap Fund, an open-ended equity scheme investing across large-cap, mid-cap, and small-cap stocks. The New Fund Offer (NFO) opens for subscription on January 16 and closes on January 30. Thereafter the scheme re-opens for continuous sale and repurchase after allotment. The scheme will be benchmarked against the Nifty 500 multi-cap 50:25:25 total returns index and will offer two plans – regular and direct.
Outlook Week Ahead
For the coming week, the Union Budget would remain the key focus event while selling pressure from Adani group shares and PSU Banks may continue. With commodity stocks showing signs of accumulation, we expect Nifty 50 to show major reversal signs around 17444 when India VIX hits 18.60 levels. Some of the key earnings that are expected this week are Bajaj Finserv, Bajaj Holdings, BPCL, GAIL, L&T, Tech Mahindra, ACC, Coal India, IOC, Power Grid, Sun Pharma, HDFC Ltd, Titan, ITC, SBI, Tata Power.
On the global front, the U.S. Fed will announce its interest rate decision on February 1. The Fed is expected to hike rates by 25 bps per week amid bets that the central bank is approaching the end of its tightening cycle. The ECB will announce the rate decision on February 2.
The Nifty is hovering near its 200-day moving average and is expected to take support around those levels provided there is no negative surprise in the Union Budget. We remain cautiously optimistic at these levels and advise investors to partially deploy surplus cash at these levels.