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Market Commentary 06 July 2022
Markets likely to get positive start amid sharp fall in crude oil prices

 

Indian equity benchmarks gave up intra-day gains to close marginally lower on Tuesday on emergence of fag-end selling in IT, TECK and Banking stocks and weak opening in European stock markets. Domestic markets had started strong by extending yesterday's gains, as traders got encouragement with Crisil Ratings' report that non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) are likely to see revival in their profitability in the current fiscal, helped by the flexibility to set lending rates under the new regulatory framework for MFIs and lower credit cost. Key gauges extended gains in afternoon deals, as India's dominant services industry expanded at the fastest pace in over eleven years in June amid strong demand but stubborn inflation remains a concern as prices charged rose at the sharpest rate in almost five years. The S&P Global India Services Purchasing Managers' Index rose to 59.2 in June from 58.9 in May, its highest since April 2011. However, benchmark indices made a U-turn in the final hour to end in red as concerns about steep hikes in COVID-era interest rates and their impact on global growth kept investors cautious globally. Some concern also came as the preliminary data released by the commerce ministry showing that India's merchandise trade deficit surged to a new high of $25.6 billion in June amid slowing demand for Indian exports and rising imports of gold, coal and crude oil. Exports grew 16.8 per cent year-on-year to $38 billion in June while imports jumped 51 per cent to $63.6 billion. Finally, the BSE Sensex fell 100.42 points or 0.19% to 53,134.35 and the CNX Nifty was down by 24.50 points or 0.15% to 15,810.85.

 

The US markets ended mostly higher on Tuesday after a volatile session. Some support came in as data from the Labor Department showed near orders for manufactured goods increased 1.6 percent month-on-month in the month of May, following an upwardly revised 0.7 percent rise a month earlier. Factory orders excluding transportation in the United States increased 1.7 percent month-over-month in May of 2022, following an upwardly revised 0.6 percent rise in April. However, markets fell sharply into the red early on in the session as fears about a possible recession and interest rate hikes by the Federal Reserve weighed on sentiment. Investors also looked ahead to the release of the minutes of the central bank's latest policy meeting, due on Friday, and the non-farm payrolls data, which is due out later in the week. Cautiousness also prevailed in the markets as the benchmark 10-year Treasury yield and the 2-year yield inverted on Tuesday, a move that has a strong historical track record as a recession indicator. When short-term Treasury yields trade above long-term yields, it could be a sign that investors expect an economic slowdown to lead to rate cuts. Meanwhile, growth fears outweighed news that US President Joe Biden may announce a rollback of some US tariffs on Chinese imports. On the sectoral front, Energy stocks tumbled as crude oil prices fell sharply amid concerns about outlook for energy demand following a surge in Covid cases in China.

 

Crude oil futures ended deeply in red on Tuesday as recession fears grow, sparking fears that an economic slowdown will cut demand for petroleum products after a private report showed business growth across the euro zone slowed further last month on inflationary pressures weighed as well on oil prices. Further, a strong dollar too contributed to the sharp drop in oil prices. The dollar index climbed to a near two-decade high of 106.79, gaining more than 1.5%, amid rising prospects of a series of sharp interest rate hikes by the Federal Reserve. Benchmark crude oil futures for August delivery dropped $8.93 or 8.2 percent to settle at $99.50 a barrel on the New York Mercantile Exchange. Brent crude for September delivery fell $10.89 or 9.59 percent to settle at $102.61 (Provisional) a barrel on London's Intercontinental Exchange.

 

Indian rupee tumbled against dollar on Tuesday amid concerns of a wider current account deficit coming time. Sentiments were fragile with preliminary data released by the commerce ministry showing that India's merchandise trade deficit surged to a new high of $25.6 billion in June amid slowing demand for Indian exports and rising imports of gold, coal and crude oil. Exports grew 16.8 per cent year-on-year to $38 billion in June while imports jumped 51 per cent to $63.6 billion. Meanwhile, the S&P Global India Services Purchasing Managers' Index rose to 59.2 in June from 58.9 in May, its highest since April 2011. On the global front, euro sank to a two-decade low versus the dollar on Tuesday as a jump in natural gas prices reignited worries about the eurozone economy and data showed business growth in the region slowed sharply in June. Finally, the rupee ended at 79.33 (provisional), weaker by 38 paisa from its previous close of 78.95 on Monday.

 

The FIIs as per Tuesday's data were net sellers in both equity and debt segment. In equity segment, the gross buying was of Rs 4963.34 crore against gross selling of Rs 6397.01 crore, while in the debt segment, the gross purchase was of Rs 91.25 crore against gross selling of Rs 409.53 crore. Besides, in the hybrid segment, the gross buying was of Rs 2.78 crore against gross selling of Rs 10.21 crore.

 

The US markets ended mostly higher on Tuesday as concerns about the state of the economy offset signs of an easing in US-China tensions. Asian markets are trading mostly in red on Wednesday as fears of an economic downturn deepened. Indian markets gave up intraday gains of more than one percent in the last hour of trade and ended lower on Tuesday, dragged by a sharp reversal in financial and IT shares. Today, markets are likely to make optimistic start tracking sharp fall in crude oil prices, which slumped 8 percent to drift below $100 a barrel for the first time since May. Some support may come as foreign institutional investors (FIIs) turned net buyers for the first time since May 30, buying shares worth Rs 1,295.84 crore on July 5, as per provisional data available on the NSE. Traders may take note of report that Union food and consumer affairs minister Piyush Goyal has asked states to encourage farmers to increase sowing area for paddy and wheat as higher domestic production will boost India's exports. Besides, revenue secretary Tarun Bajaj said that the government may bring more services under the tax net before it restructures the goods and services tax (GST) slabs. Meanwhile, CII's President Sanjiv Bajaj has pitched for the simplification of Goods and Services Tax structure, and suggested that electricity as well as fuel should be brought under the GST ambit as that will help make the industry more competitive. There will be some buzz in gold related industry stocks with a private report that volume of India's gold import almost trebled in June from a year before to 49 tonne, albeit on a low base, as jewellers continued to stock up after good sales during the Akshaya Tritiya, considered auspicious for buying the precious metal. Fertilizer industry stocks will be in focus as Union Minister for Chemicals and Fertilisers Mansukh Mandaviya said India will not need to import urea by 2025-end as the domestic production of conventional urea and nano liquid urea is expected to be sufficient to meet the country's annual demand. There will be some reaction in edible oil industry stocks as the food ministry has called a meeting with edible oil industry bodies and manufacturers to discuss reduction in the retail prices of cooking oils amid a fall in global prices. Steel and cement industry stocks will be in limelight as Fitch Ratings forecast strong medium-term growth to support the demand for India's steel, cement and chemicals sectors, with improved economic activity boosting power and petroleum product sales.

 

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

 

Index

Previous close

Support

Resistance

NSE Nifty

15,810.85

15,722.29

15,962.59

BSE Sensex

53,134.35

52,837.13

53,648.76

 

Nifty Top volumes

 

Stock

Volume

Previous close (Rs)

Support  (Rs)

Resistance (Rs)

(in Lacs)

Oil and Natural Gas Corporation

445.95

127.40

126.06

128.66

Hindalco Industries

209.28

344.10

338.26

353.41

ITC

185.68

286.75

284.00

291.25

Tata Motors

167.71

412.35

408.76

417.36

Power Grid Corporation of India

150.62

213.70

211.11

216.11

 

  • NTPC's wholly owned subsidiary -- NTPC REL has signed an MoU with National Fertilizers to collaborate in the field of Renewable Energy & Green Chemicals.
  • Tata Steel through its step down subsidiary -- Tata Steel Long Products has completed the acquisition of 93.71% stake in 1 million tons per annum Neelachal Ispat Nigam.
  • Titan Company is planning to open a new store in the US market this fiscal, besides adding more in the domestic markets. 
  • Tech Mahindra has entered into a strategic partnership with FireCompass, a leader in Autonomous Red Teaming and External Attack Surface Management.
News Analysis