PremiumIndia's equity markets were volatile on Tuesday, swinging between gains and losses. Investors now await the US Fed's next policy announcement, due Wednesday, for clues on how aggressive the central bank intends to be in raising rates.
India's benchmark equity indices ended Tuesday lower, but off lows, tracking global peers and as domestic inflation data cemented the case for more rate hikes, going ahead.
High global energy and raw material prices combined with a weak rupee fuelled the fastest annual rise in India's annual wholesale price-based inflation to 15.88% in May.
US equity futures pared gains on Tuesday and a rebound in European stocks proved short-lived, suggesting markets aren’t out of the woods after a rout driven by expectations of sharper Federal Reserve interest-rate hikes to fight inflation.
Back home, the benchmark Sensex fell 153.13 points to end the session at 52,693.57, while the Nifty was down 42.30 points at 15,732.10.
Realty, metal indices rose, while auto and oil and gas stocks fell. The midcaps and the smallcaps also ended with minor cuts.
High global energy and raw material prices combined with a weak rupee fueled the fastest annual rise in India's wholesale prices in more than 30 years, raising expectations for the central bank to order more interest rate hikes.
A surge in crude oil and commodity prices since Russia invaded Ukraine in February has set inflation alight in many countries, forcing central banks to raise interest rates.
Wholesale prices, akin to producer prices, climbed 15.88% in May from year ago levels, staying in double-digits for a 14th straight month, and was, according to economists, India's highest since September 1991.
Aviation regulator DGCA on Tuesday said it has imposed a fine of ₹10 lakh on Air India for denying boarding to passengers holding valid tickets and thereafter not providing mandatory compensation to them.
"After that a series of checks were carried out by DGCA and during our surveillance at Bengaluru, Hyderabad and Delhi, there were specific instances, in the case of Air India - where the regulation (regarding compensation to passengers) is not being followed and therefore, a show cause notice was issued to the airline and also a personal hearing was afforded," the Directorate General of Civil Aviation (DGCA) said in a statement.
According to the regulator, Air India may not have a policy in this regard and does not pay compensation to the passengers.
The U.S. dollar consolidated gains near a 20-year peak on Tuesday while its rivals from the Aussie to the euro nursed steep losses as traders braced for aggressive interest rate hikes from the Federal Reserve this week.
Expectations for a 75 basis-point increase at the conclusion of a two-day meeting on Wednesday are nearly baked into prices, according to CME's Fedwatch Tool with investment banks like Goldman Sachs expecting a 75 basis-point rate hike in June and July, and a 50 basis-point rise in September.
A 75 basis-point increase would be the biggest since 1994 and with world stock markets nursing deep losses, the dollar's appeal as a safe-haven asset is also boosting its allure.
The Indian government’s spending on information technology is expected to grow 12.1% to $9.5 billion in 2022, far higher than the 5% rise globally, according to Gartner, Inc. The research firm estimates government IT spends for the year globally to touch $565.7 billion.
“Contrary to the worldwide spending, all segments will experience growth in India in 2022," Apeksha Kaushik, principal analyst, Gartner, said in an interview.
Global geopolitical tensions and looming recession in the US are not expected to have much impact on India, she added. While software spends by the Union government will grow at the fastest pace globally at a record 28% and cross the $2 billion mark in 2022, IT services is likely to post 13.4% growth to hit $2.4 billion.
European stocks edged higher from their lowest level in over a year as investors bought the dip after a global rout sparked by worries of aggressive central bank policy tightening amid stubbornly high inflation.
The Stoxx Europe 600 Index was up 0.3% after slumping Monday to its lowest since March 2021. Banks led the advance with rate-sensitive sectors outperforming following a dip in Treasury yields. Insurance and energy stocks also rose, while real estate declined.
Bajaj Finance Limited, the lending and investing arm of Bajaj Finserv, has increased the interest rates on its fixed deposit (FD) programme by up to 20 basis points (bps), for tenors between 24 to 60 months (except 44 months).
Prime Minister Narendra Modi has asked various government departments and ministries to undertake the recruitment of 10 lakh people on a "mission mode" in the next year and a half, his office said on Tuesday.
The direction from Modi came following a review of the status of human resources in all government departments and ministries, the Prime Minister's Office (PMO) said.
The government's decision comes amid the opposition's frequent criticism of it on the issue of unemployment. A large number of vacant posts in different government sectors has often been flagged.
India's palm oil imports in May fell 10% from a month ago as top producer Indonesia curbed exports of the edible oil, a trade body said on Tuesday.
The south Asian country is the world's biggest importer of vegetable oils and lower purchases could weigh on Malaysian palm oil futures.
India imported 514,022 tonnes of palm oil in May, down from 572,508 tonnes in April, according to the Solvent Extractors' Association (SEA) of India.
Indonesia, the world's biggest producer and exporter of palm oil, on April 28 halted exports of the product to control soaring prices at home. Jakarta allowed exports to resume from May 23, but put in place policies to safeguard domestic supplies.
Indian refiners in May sourced more palm oil from Malaysia, Thailand and Papua New Guinea, but still the overall imports were down, the SEA said.
Nifty
The Nifty began the new week with heavy losses amid weak global cues and closed below 15800 level. All sectoral indices closed deep in the red with IT, media and metal being top losers. Ahead of the FOMC meeting, we expect the Nifty to remain subdued. It may face resistance at higher levels due to aggressive writing at ATM and OTM Call strikes.
Bank Nifty
The Bank Nifty also witnessed selling pressure in line with the Nifty and closed with a loss of more than 1100 points. Looking at options data, the Bank Nifty’s immediate support is at 33000 while on the higher side, 34000 Call strike will act as resistance and limit upside gains.
Inspite of a strong demand outlook for IT services providers, worsening global macro economic scenario raises concern of a recession. For IT sector, this could translate into lower client spending, thus weighing on demand pipeline beyond FY23.
Striking a note of caution, analysts at Kotak Institutional Equities said, "Profit warning from clients of IT companies and increasing external risks makes the assumption of 6-8% global IT spending growth, unreasonable. We moderate our stance and bake in normalized global IT spending growth of 3-4% for CY2023E and 7% for CY2022E." (Read here)
Nifty is currently trading at 20.7x 1-year forward EPS which is 1% discount to 10 year average of 20.9x
Past 3 major corrections show that NIFTY has bottomed out around 10 year average PE except in March 20, when it bottomed out at 23% discount to 10 year average.
-- Base Case we value NIFTY at 10 year av. PE (20.7x) with March 24 EPS of 891 and arrive at June 23 target of 18622 (18470 based on 20.8xMarch 24 EPS), 13% upside
-- Bull Case we value NIFTY at 10% premium to 10 year average (23x) and arrive at bull case target of 20484 (20317 earlier)
-- Bear Case like March20 can see Nifty trading at 20% discount to LPA with a target of 14898. However we remain positive on India growth given strong tailwinds and expect positive returns by end of FY23
Downgrades outweigh upgrades by 2.25:1
-- Major Rating Upgrade: Avenue Supermart, Jubilant Foods, Hindalco, JK Lakshmi, Aarti Inds, LIC Housing and Chola.
-- Rating Downgrade: Ambuja Cement, Bayer, Avaas Housing, LTTS, HCL, Tata Steel, JSPL, JSW Steel, IOC and Lupin
-- Major Estimates Upgrade - M&M, SBI, Chola, Ambuja cement, Fine Org, and IOC
-- Estimate Downgrade - HDFC, HDFC Bank, Muthoot, Ramco Cement, Kansai, Apollo Hospital, NH, Infy, Wipro, Zeel, Tata Steel, JSPL, JSW, SAIL, GAIL, IOC, Aurobindo and Lupin.
French energy company TotalEnergies said on Tuesday it has agreed to buy a 25% stake in Adani New Industries Limited (ANIL) as part of a deal to form a new green hydrogen project in India with the Adani company.
TotalEnergies, one of the world's biggest oil and gas producers, has faced criticism from climate activists and has been moving into the renewable energy sector and diversifying away from hydrocarbon-centred activities in recent years.
Indonesia on Tuesday issued regulations backing recently announced changes on a palm oil export tax policy, including cutting the maximum levy rate to accelerate shipments that have been slow to rebound after the ending of an export ban. But the levy rate will be raised in August, according to the finance ministry regulations, sparking concerns from an industry group. Indonesia, the world's biggest palm oil exporter, allowed palm shipments to resume from May 23 following a three-week export ban designed to boost cooking oil stocks and keep runaway local prices in check. Authorities have since launched an export acceleration programme and tweaked tax rules after shipments were slow to restart amid confusion over procedural issues. Details of Tuesday's regulations were in line with previous announcements, including lowering the maximum levy rate for crude palm oil to $200 a tonne from $375, effective until 31 July.
Bitcoin extended declines on Tuesday as investor sentiment took another leg down over fears that bigger Federal Reserve interest-rate hikes loom to quell inflation.
The world’s largest digital token shed as much as 10.3% to reach $20,824, the lowest level since December 2020. A range of other tokens from Ether to Avalanche were also nursing losses.
Gold hovered near a four-week low on Tuesday, as some bears looked to book profits, but prices remained largely pressured by a strong dollar and investors dumping bullion to cover for losses in other assets.
Amid prospects of aggressive monetary policy tightening, spot gold rose 0.4% to $1,825.97 per ounce, in Asian deals, after falling to its lowest since May 19 at $1,810.90 earlier in the session.
The market crashed with full force on the first day of the week, as benchmark indices slumped below their crucial levels on across-the-board selling pressure. There have been heightened concerns amongst investors that central banks will be more aggressive in the coming months to hike interest rate hikes in order to combat inflation, which will in turn hurt economic growth and put margins under pressure. Markets were also down due to continued strength in Brent crude prices, 10-year bond yields rising to 3.20% from recent lows of 2.80%, and the expected CPI numbers. The fear and uncertainty was clearly visible in India's VIX, which is up over 15% at 22.50.
Technically, if the Nifty breaks and closes below 15700, it will be a major downside event for the market. In such a situation, the index would fall to the level of 15500-15400 in the short term. It is advisable to reduce a weak long position below the 15700 level. Also, Bank Nifty could drop to 32000 level if it ends below 33500.
Oil prices seesawed in positive and negative territory on Tuesday, holding up despite recession fears and potential new COVID-19 curbs in China that could dampen demand as the market remains tightly supplied.
U.S. West Texas Intermediate (WTI) crude eased 4 cents to $120.89 a barrel in early deals, while Brent crude futures dipped 6 cents to $122.21 a barrel.
Retail inflation eased in May from the eight-year high it hit the previous month but remained well above the central bank’s upper tolerance level, adding pressure on policymakers to tame unrelenting price rise.
Consumer Price Index inflation moderated to 7.04% in May from 7.79% in April, helped by slower increases in food prices, data released by the Ministry of Statistics and Programme Implementation (MOSPI) showed on Monday. (Read here)
Shares of Mahindra & Mahindra, Srei, Zomato, Uflex, Zydus Life, RIL, among others, will be in focus today.
Nifty futures on the Singapore Exchange fell 117.50 points, or 0.74%, to 15,661.00 in early deals on Tuesday, indicating a negative start for Indian benchmarks.
India's benchmark equity indices slumped over 2.5% on Monday amid a sell-off in global markets. The rupee plunged 20 paise to close at an all-time low of 78.13 against the US dollar, as a lacklustre trend in domestic equities and stronger greenback overseas weighed on investor sentiment.
The Sensex fell 1,456.74 points to end the day at 52,846.70, having touched an intraday low of 52,527.08. The Nifty was down 427.40 points or 2.64% at 15,774.40.
Asian shares tumbled on Tuesday after Wall Street hit a confirmed bear market milestone and bond yields struck a two-decade high on fears aggressive U.S. interest rate hikes would push the world's largest economy into recession.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.9%.
Australian shares S&P/ASX200 sank 5% in early trade, while Japan's Nikkei stock index was down 1.74%. In Hong Kong, the Hang Seng Index slipped 1.44% and China's CSI300 Index was down nearly 1% at open.
US futures steadied in the wake of a three-day rout in the S&P 500 of nearly 9%. Robust earnings from technology bellwether Oracle Corp. lifted battered tech shares in extended US trading.
On the Wall Street on Monday, the S&P 500 fell 151.23 points to 3,749.63 and dropped 21.8% below its record set early this year to put it into what investors call a bear market. The S&P 500 has lost nearly 9% in just three days. That’s its worst such stretch since the earliest days of the coronavirus crash in March 2020.
The Dow lost 876.05, or 2.8%, to 30,516.74 on Monday, and the Nasdaq composite dropped 530.80, or 4.7% to 10,809.23.
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