This week in a nutshell (25th July- 29th July)

Technical talks

NIFTY opened the week on 25^th July at 16,663 and closed on 29^th July at 17,158. It made a weekly gain of 3%. The index has managed to sustain above the 50DMA of 17,087 level, which might act as a support. On the upside, the recent high of 18,115 might act as a resistance.

Among the sectoral indices, METAL (+7.7%), MEDIA (+5.2%), and IT (+3.5%) were the top gainers while AUTO (-0.7%), PSU BANK (-0.1%), and FMCG (-0.04%) led the losers in the week.

Weekly highlights

• After upbeat forecasts from Apple and Amazon.com, the US indices closed the week in the green. Tech-heavy NASDAQ was up 4.5%, S&P 500 up 4.3%, and Dow Jones Industrial Average was up ~3% for the week. The earnings season continued to cause volatility in US markets. A profit warning from Walmart dragged down retail shares during the week. Exceptionally weak consumer confidence data added to investors’ worries.
• The US Commerce Department said the American economy contracted in the second quarter of CY22. This was the second straight quarterly decline in gross decline profit (GDP) reported by the government. This news increased the chances of a recession in the US which impacted investor sentiments.
• The Federal Reserve increased the interest rates for a second consecutive quarter by 0.75 percentage points, in line with expectations. Elevated inflation has been attributed to supply chain issues and higher prices for food and energy along with broader price pressures.
• The Reserve Bank of India (RBI) said on July 22 that India’s foreign exchange reserves dropped to $572.71 billion. This was the lowest level in more than 20 months, after declining by $7.54 billion in the week ending July 15. As of November 6, 2020, foreign exchange reserves were last as low.
• Brent Oil settled 5.4% up at USD 104/barrel. Crude Oil WTI was up 3.6% at USD 98/barrel. Supply concerns and a weaker US dollar lifted oil prices this week. Investors’ attention is on OPEC and allies meeting to discuss production quotas for September. This meeting is expected to have a significant impact on the oil markets because OPEC+ has reached the end of its plan to gradually unwind its production cuts from May 2020 and there is no clear roadmap of predetermined quotas.
• Due to price erosion pressure, Indian pharmaceutical companies are likely to experience reduced revenue growth from the US generics market in FY23, according to rating agency Icra. The US has always been a significant market for Indian pharmaceutical companies. ICRA says that in recent years, revenues from there have grown relatively slowly because of persistent pricing pressure, the absence of significant generic product launches, and increased regulatory scrutiny. ICRA says high single-digit to low-teens price erosion caused the revenues from the US pharmaceutical market for its sample of eight top Indian pharmaceutical companies to drop by 0.2% in FY22.
• FII (Foreign Institutional Investors) turned net sellers this week, selling shares worth Rs 1,460mn. DII (Domestic Institutional Investors) continued to be net buyers and purchased shares worth Rs 23,835mn.

Things to watch out for next week

• According to Financial Express, the RBI is expected to hike interest rates by 35-50bps in the monetary policy meeting to be held between August 3-5. The interest rate differential between US and India should be kept minimal to avoid depreciation of the Indian Rupee.
• Investors’ attention would be on company-specific news as the earnings season has picked up momentum. There could be volatility in Indian markets post earnings of companies like M&M, UPL, SBI, Varun Beverages, and consumer companies Dabur, Godrej Consumer, and ITC. Comments on the impact of inflation on demand, and easing of supply chain challenges would drive the share price.

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