Tag - equities

Week in a Nutshell (13-17 June)

Technical talks

NIFTY opened the week on 13th June at 15,878 and closed down 4% on 17th June at 15,294. The index is trading below the lower Bollinger band and the next support is likely at 15,183. The recent high of 16,794 might act as a resistance. The RSI (14) of 36 indicates the index is nearing the oversold levels.

During the week, METAL (-9.1%), IT (-8.2%), and PSU Bank (-7.7%) led the sectoral losers. There were no sectoral gainers.

Weekly highlights

  • High inflation has investors worried in recent weeks about a toll on corporate profits and economic growth. On Monday, the S&P 500 confirmed it’s in a bear market at is now down more than 20 percent from its most recent record closing high.
  • After a selloff triggered by a series of interest rate hikes by the Federal Reserve and other major central banks, all three US indices ended in the red this week. NASDAQ and Dow Jones were down 4.8% each while S&P 500 was down 5.8%. The cosmetics company Revlon Inc surged ~80% on Friday after reports suggested Reliance Industries may be considering buying out the company.
  • The Federal Reserve raised interest rates by three-quarters of a percentage point, the most since 1994. Officials have indicated that aggressive rate hikes will continue, with severe measures being used to combat rising inflation.
  • Crude oil prices were impacted as investors worried about the global economic outlook and markets were impacted post interest rate hikes around the world. Brent Oil was down 6.9% during the week and ended at USD 113.6/barrel while Crude oil ended 8.4% lower at USD 110.4/barrel on Friday.
  • The Indian Index of Industrial Production (IIP) climbed from 2.2% in March to 7.1% in April. The April industrial growth rate of 7.1 percent is the highest in eight months, notwithstanding the benefit of a favorable base effect.
  • Wholesale price inflation soared to a record high in May due to rising food and fuel prices, posing a challenge to authorities dealing with high inflation. Wholesale prices climbed to 15.9 percent in May vs 15.1 percent in April and was, according to economists, India’s highest since September 1991.
  • Retail inflation for May was 7.04% from April’s near-eight-year high of 7.79 percent due to a favorable base effect. The fall in inflation in May is unlikely to do much to slow down the Reserve Bank of India’s (RBI) rate hike cycle.
  • Foreign institutional investors (FIIs) continued to be sellers, selling equities worth Rs 232,740 mn. Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 172,270 mn.

Things to watch out for next week

  • Major central banks followed the US Federal Reserve in raising interest rates. Rising prices and tightening monetary policies have rattled investors which dragged the equities world over.
  • S&P Global will release the flash purchasing managers indices (PMI) data for June for major economies later next week. In addition, inflation, and consumer and business climate gauges will also be released. This will provide insights into the current state of the global economy.
  • With quarterly earnings season out of the way, investors will focus on macroeconomic activities and action would be stock specific. Indian investors’ attention will be on the progress of the monsoon across the country.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

What to do in these times?

As Indian markets continue to fall along with most other international markers, investors are wondering if this is the time to buy their favorite stocks. The latest trigger for the decline was the Russia – Ukraine conflict. The situation keeps changing every day but the impact on commodities – oil, sunflower oil, metals such as aluminum, copper and nickel, corn, wheat – prices have been immediate. The auto industry would be specifically affected as Russia is also a significant supplier of palladium a key component in semiconductor chips. Natural gas prices are already on the rise and Russia’s ejection from the global swift system could cause a lag in trade payments affecting balance sheets. The best outcome from investors’ perspective would be the cessation of hostilities and the world going back to its previous way of working. The possibility of this happening is fairly low.

Indian investors have to worry about three more developments in early March. We expect oil prices to be increased any time after 7th March (the last date of polling in UP). Credit rating agency ICRA points out that “While it is difficult to pinpoint the exact amount of lagged revision in RSPs (retail selling prices) of MS (motor spirit) and HSD (high-speed diesel) that is warranted by the surge in crude oil prices to the current levels, we expect it to be in a range of Rs 6-8/litre, i.e., similar to the cushion offered by potential excise reversion to pre-Covid rates,” its Chief Economist Aditi Nayar said in a report.

The international crude oil price, in Indian basket terms, surpassed the USD 100 per barrel mark on February 24 for the first time since September 4, 2014, the report said. The price of the Indian crude oil basket has averaged USD 93.1 per barrel so far in February 2022, a 10.5 percent surge relative to USD 84.2 per barrel in January 2022, it added.

Another development to watch out for is the results of five state assembly polls that will be announced on 10th March. Global investors are watching Fed action on interest rates to be announced on 16th March. This may bring some volatility to asset prices in emerging markets such as India.

The third development to watch will be the IPO of Life Insurance Corporation. The timing and size of the issue have not been announced yet. This could be a very large issue and reduce the liquidity in the market. Investors may sell other holdings to invest in this IPO. This could lead to a decline in share prices around the time of the IPO.

Another development to watch out for would be the conclusion of the Winter Olympics in China, which had affected the supply of key raw materials, especially heavy metals and pharma companies, due to Beijing’s determination to reduce pollution. We can expect the supply chain woes dependent on Chinese raw materials to ease, lowering the pressure on costs.

Should we add defensive sectors to the portfolio?

In uncertain economic times, investors have preferred to invest in defensive sectors like software services, pharma, and the consumer sector in the past. Is it time to do that again now?

We think the demand outlook for these sectors might not get impacted in the short term but high commodity prices will keep the margins under pressure for longer than anticipated. Companies will struggle to protect their margins and juggle between passing the inflation to consumers and cost-cutting. This may impact profit outlook adversely for the medium term eventually impacting the share prices. Industries getting impacted due to the shortage/inflation of RM and energy prices will have to cut down their discretionary spending. Companies may have to restrict ad and IT budgets to protect their margins. This may slow down the growth of Media and Entertainment and software companies in the medium term.

In summary, we think that investors should be patient with their investments before any clarity emerges on the prevailing economic issues- how the war and Indian elections affect the oil prices and Fed’s meeting on 15th March.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”