Markets consolidates; Global central banker policy meet in focus in coming week
Markets corrected after two-week gains as global markets fell due to fear of an economic slowdown and worries over a Fed rate hike. In line with market expectations, the RBI in its monetary policy meeting hiked rates by 35 bps to 6.25 pct continuing its fight against inflation. This is the fifth consecutive repo rate hike since May of this year.
RBI has added one important statement that the ‘inflation adjusted’ policy rate remains accommodative. The inflation forecast for FY23 retained at 6.7 pct and the growth projection was revised slightly lower to 6.8 pct from 7 pct earlier. Despite the resilient domestic activity, the downward revision was primarily due to adverse global growth spillover, from which India might not be insulated for long.
Global markets witnessed volatile movement as investors got spooked by better-than-expected data from the services sector which re-assessed whether the Federal Reserve could hike interest rates for longer.
For the week, the Nifty fell 1 pct to close at 18,497 levels while the Nifty Midcap 100 and Nifty Smallcap 100 fell 0.6 pct and 1.1 pct respectively. On the sectoral front, the Nifty PSU Bank index outperformed and gained 4.8 pct. Nifty FMCG and Nifty Bank index gained 2.2 pct and 1.2 pct respectively.
On the loser’s side, Nifty IT was the top loser with losses of 6.1 pct followed by Nifty Realty (down 3.4 pct) and Nifty Pharma (down 2.4 pct). FIIs turned net sellers to the tune of Rs 43 bn and DIIs were net buyers to the tune of Rs 37.1 bn.
Crude prices continued to fall on economic slowdown and weakening fuel demand amid the prospect of more U.S. interest rate hikes. The Brent traded at USD 76.82 a bbl, down 11 pct for the week. Both Brent and U.S. crude hit 2022 lows, unwinding all the gains made after Russia’s invasion of Ukraine intensified the worst global energy supply crisis in decades and sent oil close to its all-time high of USD 147.
USDINR for the week ended with more than 1% gains to confirm the ‘Bullish Rising Three methods’ on the weekly candlestick chart. This up move is expected to force USDINR towards 84 in the coming days on an expectation of a 50 bps rate hike by the US Fed. Any up move beyond 84 should be seen as a warning sign for the rupee as USDINR could open gates towards 90 in a quick span of time.
Stocks/Sector in Spotlight
- HUL has announced a twin acquisition of OZiva & Wellbeing Nutrition which is present in the premium segment of Health & Wellness with a presence in the Vitamin, Minerals, and Supplements space with a potential market size of Rs300bn over the next 5 years. The move is in line with HUL’s attempt to increase its presence in the Wellness segment post-acquisition of Horlicks. HUL is currently present at the mass end in the supplement and wellness space through Horlicks (GSK acquisition), these acquisitions will help grow its presence in the premium segment (8x realization in OZiva vs base variant of Horlicks).
- HCL Tech was in the limelight after it said that its revenue growth for FY23 will be at the lower end of the guidance of 13.5-14.5 pct CC. This spooked the markets and the entire technology pack as the Nifty IT index witnessed a correction of 3 pct and HCL Tech fell by 6.7 pct. HCL Tech however retained its OPM band at 18-19 pct.
- ICICI Bank at its annual Analyst Day reiterated the bank’s core objectives which are customer 360 (taking the whole bank to the customer, not a few products), return on capital focus via granular profit, and building the most trusted brand. As per the management, macro tailwinds provide the best-in-37-years opportunity to Indian banks. There has been a structural change in the mindsets of consumers/ corporate borrowers in the last three years. ICICI presented many numbers to demonstrate how it has strengthened its digital lead over the last year.
- Tata Sons Chairman stated that the Tata Group would start producing semiconductors in India within the next few years. The production of the chips would make India a key supplier on a global scale. The group has already set up Tata Electronics under which the semiconductor assembly testing business will be set up. Potential partners in the project would be from the US, Japan, Taiwan, and South Korea. The Group will look at the possibility of eventually launching an upstream chip fabrication platform.
- Maruti Suzuki India will increase the prices of its vehicles ‘substantially’ from next month as it looks to offset the impact of rising input costs and make provisions to update the model range to conform to stricter emission norms which kick in from April 2023
- Amara Raja Batteries will be investing over Rs 9,500 crore, over a period of 10 years for setting up research and development, and a Greenfield manufacturing facility for lithium-ion battery-making in the Mahbubnagar district of Telangana.
- Oil and Natural Gas Corporation (ONGC) has signed an MoU with global petroleum giant Shell for cooperation in Carbon Capture, Utilization, and Storage (CCUS) studies. The collaboration shall focus on a joint CO2 storage study and EOR screening assessment for key basins in India including depleted oil and gas fields, and saline aquifers.
International News
- The US trade deficit widened to $78.2 billion in October from a revised $74.1 billion in September. Economists had expected the trade deficit to increase to $79.1 billion from the $73.3 billion originally reported for the previous month.
- US services industry activity unexpectedly picked up in November, with employment rebounding, offering more evidence of underlying momentum in the economy as it braces for an anticipated recession next year.
- Eurozone business activity declined for a fifth month in November, suggesting the economy was sliding into a mild recession as consumers cut spending amid surging inflation.
- US labor productivity climbed by 0.8 percent in the third quarter compared to the previously reported 0.3 percent uptick. Economists had expected productivity growth to be upwardly revised to 0.5 percent.
- Consumer prices in China were up 1.6 percent on year in November. That was in line with expectations and down from 2.1 percent in October.
Mutual Funds Industry Update
IIFL Mutual Fund launches India’s first passive tax saver scheme
IIFL Mutual Fund has launched the new fund offer (NFO) of IIFL ELSS Nifty 50 Tax Saver Index Fund, India’s first Tax Saver Index Fund. The NFO opens on December 1 and closes on December 21. The scheme will re-open for subscription and redemption on an ongoing basis from January 02.
Parijat Garg will be the fund manager for IIFL ELSS Nifty 50 Tax Saver Index Fund. Like other ELSS funds, the scheme will provide the dual advantage of tax saving under Section 80C and the potential to benefit from diversified exposure to the equity markets.
Edelweiss Mutual Fund launches fourth tranche of ‘BHARAT Bond ETF’
Edelweiss Mutual Fund has launched the fourth tranche of BHARAT Bond ETF. The BHARAT Bond ETF is India’s first corporate bond ETF and it is an initiative of the Government of India, from the Department of Investment and Public Asset Management the latter has given the mandate to Edelweiss Mutual Fund to design, launch and manage the product.
This new BHARAT Bond ETF and BHARAT Bond Fund of Fund (FOF) series will mature in April 2033. The NFO will start on December 2 and end on December 8. Through the launch of this new series in the fourth tranche, Edelweiss Mutual Fund proposes to raise an initial amount of Rs. 1,000 cr. with a green shoe option of Rs. 4,000 cr. So far, five maturities of Bharat Bond ETFs have been launched – 2023, 2025, 2030, 2031, & 2032.
IDFC Mutual Fund to be renamed Bandhan Mutual Fund
Markets regulator Securities and Exchange Board of India (SEBI) on Wednesday cleared the Bandhan-led consortium’s proposed acquisition of IDFC Asset Management Company. Earlier this year, a consortium of Bandhan Financial Holdings GIC and ChrysCapital signed an agreement to buy IDFC AMC and IDFC AMC Trustee Company from parent IDFC, for Rs 4,500 crore.
Outlook Week Ahead
The coming week is important, and we expect volatility to remain high as Investor attention remains focussed on this week’s Federal Reserve policy meeting, where the central bank is widely expected to issue a 50-bps interest rate hike. Since the ECB and Bank of England meetings also are due next week, it would be important to know the leading central banks’ view on the emerging economic scenario and their policy response.
Few of the macroeconomic data are expected to be out this week. They are IIP and manufacturing production data on 12 December along with inflation data on the same day. WPI inflation data for November is due on 14 December. Overseas, China will also announce IIP data on 15 December. The weekly close below 18580 in Nifty has punctured the short-term momentum and could be re-testing the next line of support towards 18300 in days to come.
The overall view suggests buying on a decline with a major stop loss placed at 18100 and a potential target of 19867. The risk from global markets emerges from the breakdown in the Nasdaq Composite below 1000 DMA which can open wider cracks of more than 20% in the near term. For Indian markets, the potential of Nifty 50 hitting 19867 would be negated on a close below 18100, thus should be watched with caution as the rupee may trigger panic selling after USDINR crosses the 84 mark.
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.
