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Market Commentary 01 July 2022
Benchmarks to make flat-to-negative start amid weak global markets

 

Indian equity benchmarks kept swinging between the red and green zones throughout the choppy session and closed flat with a negative bias on Thursday, amid weak global trends. Key gauges made positive start, as traders took some support with Finance Minister Nirmala Sitharaman's statement that any increase in GST rates under the rate rationalisation exercise is intended to make up for the inefficiencies in the value chain. Some support also came as Prime Minister Narendra Modi stating that his government is taking measures to help micro, small and medium enterprises (MSMEs) increase exports and is framing new policies that will help the sector realize its potential. Traders also took a note of a report released by Washington-based World Federation of Direct Selling Associations (WFDSA) stated that the Indian direct selling industry has reported retail sales of $3.25 billion in 2021 (around Rs 27,650 crore) and maintained its 12th place in the global rankings. However, key gauges soon erased gains and turned volatile, as exchange data showed that foreign institutional investors (FIIs) remained net sellers in the capital market, as they sold shares worth Rs 851.06 crore on Wednesday. Some concern also came amid reports that the Goods and Services Tax (GST) Council's two-day meeting concluded without any decision on extending compensation to states - for revenue loss on account of the regime's implementation five years ago - beyond June 30. This was despite at least two dozen states raising the issue. Adding to the pessimism, a private report stated that inflationary pressures are likely to continue and force the RBI to further hike interest rates during the course of the current fiscal but the tighter financial conditions can impact growth. The report said there are reasons to be optimistic on the growth front but factors like tighter financial conditions can have an impact on the GDP expansion. Finally, the BSE Sensex fell 8.03 points or 0.02% to 53,018.94 and the CNX Nifty was down by 18.85 points or 0.12% to 15,780.25.

 

The US markets ended lower on Thursday amid lingering concerns about the global economic outlook and the possibility of a recession. A report from the Commerce Department provided further evidence of an economic slowdown, showing personal spending increased by less than expected in the month of May. The Commerce Department personal spending edged up by 0.2 percent in May after climbing by a downwardly revised 0.6 percent in April. Street had expected personal spending to increase by 0.5 percent compared to the 0.9 percent advance originally reported for the previous month. Real personal spending, which excludes price changes, fell by 0.4 percent in May after rising by 0.3 percent in April. Meanwhile, MNI Indicators released a report showing growth in Chicago-area business activity slowed by more than expected in the month of June. The report showed the Chicago business barometer slumped to 56.0 in June from 60.3 in May. While a reading above 50 still indicates growth, street had expected the business barometer to dip to 58.0. With the bigger than expected decrease, the Chicago business barometer dropped to its lowest level since August of 2020. The pullback by the business barometer came as the new orders index tumbled by 9.8 points to a two-year low of 49.9, while the production index slid by 5.7 points. On the sectoral front, Gold stocks moved sharply lower over the course of the session, dragging the NYSE Arca Gold Bugs Index down by 4.3 percent to its lowest closing level in over two years. The sell-off by gold stocks came amid a decrease by the price of the precious metal, with gold for August delivery falling $10.20 to $1,807.30 an ounce. Substantial weakness was also visible among steel stocks, as reflected by the 2.4 percent slump by the NYSE Arca Steel Index. Energy stocks also showed significant moves to the downside as the price of crude oil for August delivery plunged $4.02 to $105.76 a barrel.

 

Crude oil futures ended sharply lower on Thursday, magnifying their previous session's losses, as a weekly increase in U.S. gasoline and distillate supplies raised worries over price-related demand destruction and major oil producers pledged to boost production by 648,000 barrels a day in August, as expected. Further, oil prices also fell as a report from the Commerce Department provided further evidence of an economic slowdown, showing personal spending increased by less than expected in the month of May. The Commerce Department personal spending edged up by 0.2 percent in May after climbing by a downwardly revised 0.6 percent in April. Benchmark crude oil futures for August delivery fell $4.02 or 3.7 percent to settle at $105.76 a barrel on the New York Mercantile Exchange. Brent crude for August delivery dropped $1.45 or 1.3 percent to settle at $114.81 a barrel on London's Intercontinental Exchange.

 

Indian rupee ended marginally higher against dollar on Thursday, on persistent selling of the American currency by exporters. Traders got some support, as amid the rupee declining against the US dollar, Finance Minister Nirmala Sitharaman said the Indian currency is relatively better placed than other global currencies against the greenback. However, gains remain capped as some concern came with a private report stated that inflationary pressures are likely to continue and force the RBI to further hike interest rates during the course of the current fiscal but the tighter financial conditions can impact growth. The report said there are reasons to be optimistic on the growth front but factors like tighter financial conditions can have an impact on the GDP expansion. On the global front, the euro struggled to regain its footing on Thursday after tumbling overnight against a resurgent U.S. dollar, which benefited from safe-haven demand on renewed worries about higher rates and a global recession. Finally, the rupee ended at 78.97, stronger by 6 paise from its previous close of 79.03 on Wednesday.

 

The FIIs as per Thursday's data were net sellers in both equity and debt segments. In equity segment, the gross buying was of Rs 5971.77 crore against gross selling of Rs 6280.59 crore, while in the debt segment, the gross purchase was of Rs 53.50 crore against gross selling of Rs 113.47 crore. Besides, in the hybrid segment, the gross buying was of Rs 11.21 crore against gross selling of Rs 10.12 crore.

 

The US markets ended lower on Thursday after data showed U.S. household spending slowed in May amid historically high inflation and elevated interest rates. Asian markets are trading mostly in red on Friday on recession fears. Indian markets closed flat with marginal losses on Thursday as fag-end selling wiped out intra-day gains amid weak global trends. Today, markets are likely to get flat-to-negative start amid weakness in global markets. Traders will be concerned as the latest public debt management report showed that the government's total liabilities rose 3.74 per cent to Rs 133.22 lakh crore in the March quarter from Rs 128.41 lakh crore in the three months ended December 2021. There will be some cautiousness as the Reserve Bank said India's external debt increased by $47.1 billion to $620.7 billion in the financial year ended March 2022. More pessimism may come as retail inflation for industrial workers rose to 6.97 per cent in May from 6.33 per cent in April this year, mainly due to higher prices of certain food items. Besides, the central government's fiscal deficit at the end of May stood at 12.3 per cent of the annual budget target for 2022-23, mainly due to higher expenditure. However, some respite may come later in the day as the government data showed that the growth of eight core infrastructure sectors expanded by 18.1 per cent in May against 16.4 per cent in the year-ago period and 9.3 per cent in April 2022. Traders may take note of the Reserve Bank of India's (RBI) statement that the Indian economy is well on the path of recovery even though inflationary pressures and geopolitical risks warrant careful handling and close monitoring of the situation. Besides, Finance Minister Nirmala Sitharaman said the Indian currency is relatively better placed than other global currencies against the greenback. Meanwhile, with an aim to provide further clarity and transparency in the disclosure of shareholding pattern to investors, Sebi came out with a new format for disclosing shareholding pattern of the public shareholders. There will be some buzz in the coffee industry stocks as Coffee Board said coffee shipments from India, Asia's third-largest producer and exporter, rose 19 per cent to 2,24,293 tonne in the first half of the current calendar year.  The country had exported 1,88,736 tonnes in the year-ago period. India ships both robusta and Arabica varieties, besides instant coffee. Baking stocks will be in focus as the Reserve Bank of India in its Financial Stability Report for June said that in March 2022, the gross net performing assets' ratio fell to a six-year low of 5.9%. Investors will watch out monthly auto sales figures due later in the day amid hopes of revival from chip crunch and supply disruptions to aid demand.

 

Support and Resistance: NSE (Nifty) and BSE (Sensex)

 

Index

Previous close

Support

Resistance

NSE Nifty

15,780.25

15,709.40

15,870.55

BSE Sensex

53,018.94

52,808.94

53,303.23

 

Nifty Top volumes

 

Stock

Volume

Previous close (Rs)

Support  (Rs)

Resistance (Rs)

(in Lacs)

Oil and Natural Gas Corporation

387.25

150.90

148.61

153.81

Hindalco Industries

212.25

337.70

333.20

346.05

Tata Motors

201.21

411.00

406.00

420.00

NTPC

192.70

142.60

141.19

143.99

ITC

192.62

272.15

271.20

273.90

 

  • Tata Motors' subsidiary -- Tata Technologies has joined the Foxconn-initiated MIH Consortium to promote development of sustainable mobility solutions and encourage collaboration within the industry.
  • UPL and Bunge have entered into a new partnership to increase productivity, profitability and sustainability for farmers in Brazil.
  • Tata Steel is planning to spend around Rs 1,200 crore on new technology development over the next three to four years. 
  • Axis Bank and Airtel Payments Bank have entered into the partnership which aims to digitise the cash collection system in small cities and semi-urban regions.
News Analysis