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04 Jul

Week in a nutshell (27June-1July)

Technical talks

NIFTY opened the week on 27th June at 15,926 and closed at 15,752 on 1st July. The lower Bollinger Band level of 15,370 might act as a support, while, on the upside, the 16,250 level might act as a resistance.

Among the sectoral indices, FMCG (+2.8%), REALTY (+1.6%), and HEALTHCARE (+1.1%) were the gainers during the week. OIL&GAS (-4.2%) was the only loser.

Weekly highlights

  • All of the major US indices ended the week on a volatile note as oil prices rose and fell throughout the week. S&P 500 closed the week marginally higher at 3,825 and Nasdaq at 11,129.
  • WTI crude oil and Brent crude closed flat at -0.3% after fears that the US economy would enter a recession, resulting in lower oil demand.
  • Accenture reported 3QFY22 earnings, with revenues exceeding expectations at US$16.2 billion. According to the leadership, cost optimization, along with growth, is now the focus area for clients. However, it lowered its fiscal forecast due to a negative foreign exchange impact and rising inflation.
  • According to official data released on June 30th, output in India’s eight core infrastructure sectors increased by 18.1% in May, compared to 16.4% the previous year. This suggests that the economy is gradually returning to normalcy.
  • Japan’s factory activity growth slowed in June, with the PMI falling from 53 to 52, as supply disruptions, exacerbated in part by China’s strict COVID-19 curbs, hurt manufacturers, keeping the economy underpowered and with few catalysts to spur a robust recovery in the short run.
  • US consumer spending data was released on June 30th, showing that US consumer spending rose less than expected in May as motor vehicles remained scarce and higher prices forced cutbacks on purchases of other goods, indicating that the early recovery in economic growth was a losings steam.
  • On June 29, India’s Cabinet approved a plan that would allow local crude producers to sell oil to private companies, boosting revenue for state-run producers such as ONGC and Oil India. The decision will take effect on Oct. 1, and existing conditions for selling crude oil to government-run companies will be waived, according to a government statement, adding that exports will be prohibited. Reliance Industries’ share price tanked more than 7% Friday after the government levied an additional tax on crude oil.
  • FII (Foreign Institutional Investors) net sold ₹ 68,350 mn and DII (Domestic Institutional Investors) were net buyers this week. DIIs bought shares worth ₹ 59,250 mn.

Things to watch out for the next week

  • On Monday the labor markets will be in the spotlight next week, with the June nonfarm payrolls report due on Friday.
  • The 1QFY23 result season kicks off with IT major TCS reporting earnings on Friday.
  • The International PMI surveys, which track business sentiment in the United Kingdom and the eurozone, will be released on Tuesday, while the meeting minutes from the FOMC’s most recent policy meeting, held in mid-June, will be available on Wednesday.

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.”

 

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21 Jun

The Fed Game!!

Fed raised interest rates and pledged a whatever-it-takes approach to fighting inflation. Let us understand the rationale behind this decision.

Around 2 years back the world was panicking due to the pandemic. Economists were worried as everyone was locked inside their houses, not purchasing things, not using many services, leading to spending going down. When spending goes down, companies’ profits go down. When profits go down, people lose their jobs. When jobs are lost, the economy slows down, people grow poorer which is not good for the economy.

A slowing economy is an economist’s nightmare. Central banks across the world were facing this problem. Business and spending are hugely driven by borrowed money that is paid back. One way central banks try to stimulate more spending is by making it easier to take loans by lowering interest rates. India did the same in CY20.

There’s one more option on top of this: print more money. India did not opt for this option but the US did. As we all know, the US is the world’s biggest economy, whatever the US does affects the rest of the globe. Low-interest rates coupled with an excess supply of money caused the effect they wanted to see.

People and businesses started borrowing money. The money supply increased leading to spending and the economy started seeing its effects. So, the question arises why don’t we just keep the rates low and keep money printing? When there’s too much money easily available to everyone, spending increases too much. This leads to too many buyers of goods and services and not enough goods suppliers and service providers. There’s a ton of demand, but not enough supply. This always leads to prices increasing, contracting the buying capacity of the consumers which leads to inflation. Low-interest rates and money printing for too long result in inflation.

The US central bank printed high amounts of money is now leading to record inflation. How do central banks deal with this situation now? The opposite of what they did to increase economic activity – increase interest rates and stop printing money.

The inflation the world is seeing right now is not just because of low-interest rates and money printing. The markets falling is also because of the inflation that we’re seeing. Due to disruptions during the pandemic, many items are in short supply. That is making this inflation worse. Oil is one such. Microchips that go in all sorts of gadgets and cars are another example.

Of course, this isn’t the first time we’re seeing inflation. It has happened in the past multiple times. Inflation isn’t hurting India as much as it is hurting the west so far.

As an investor, you should focus on real returns. Real returns are what you get once you subtract the inflation. If an investment is giving you 6% and inflation is 7%, you actually lost money at a rate of 1% per annum. If you’re able to make 15% and the inflation is, say, 9%, your real return is 6%. Needless to say, this doesn’t mean you simply invest only in high return (which are high-risk) investments. You need to diversify according to your risk-bearing capacity. But the point remains, as an investor, real returns are the only way you should think of returns.

The equity markets are impacted due to such economic activities and investors might benefit from such a situation in long term. Our team recommends value stocks and you can even benefit from these stocks which are available at cheap rates.

Happy investing!!

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.”

 

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05 Mar

This Week in a Nutshell (28Feb-4 March)

Technical talks

NIFTY opened the truncated week on 28th February at 16,482 and ended at 16,245 on 4th March. Amid the geopolitical tensions, the Indian benchmark index extended in the red for a fourth consecutive week. The index lost 1.4% during the week. The next support and resistance levels for the index would be 16,134 and 16,937 respectively. The RSI (14) of 35 indicates the index is in the oversold zone.

Among the sectoral indices, METAL (+7.0%), and IT (+2.1%) were the only gainers during the week. AUTO (-9.2%), FINANCIAL SERVICES (-5.6%), and BANK (-5.6%) led the losers.

Weekly highlights

  • Investors’ appetite was rattled by the intensifying Russia-Ukraine conflict, which obscured a much better-than-expected monthly jobs data in the USA. After Russia seized a Ukrainian nuclear plant and expanded its attack on numerous cities on Friday, all three major US indices — the Nasdaq 100, Dow Jones, and S&P 500 – closed the week in the red. As a result, investors shifted their portfolios away from risky assets and toward bonds and gold.
  • Oil prices soared to multi-year highs as Russia’s invasion of Ukraine escalated and buyers shied away from supplies from the world’s second-largest crude exporter. Brent Crude and West Texas Intermediate finished the week at USD 118 and 115 a barrel, up 20.5 percent and 25.6 percent, respectively.
  • For the month of February-22, the auto OEMs reported monthly volumes. With the easing of supply chain limitations and fresh launches, the demand for passenger vehicles (PVs) has remained strong. The market for 2Ws was muted, but premium 2Ws are seeing increased demand as chip availability improves. A modest increase in CV demand is being aided by robust demand from the infrastructure and construction sectors. Due to a high base and an extended rain that damaged the Kharif crop, tractor sales were hurt. In the medium term, the auto sector may benefit from improved rural sentiment and a healthy Rabi season.
  • Chairman of the Federal Reserve, Jerome Powell, informed the US Congress on Wednesday that he intends to propose a quarter-point interest rate rise at the Fed meeting on 16th He hinted that, depending on the effects of the Ukraine war and other circumstances, the Fed may be willing to raise rates even further.
  • The Indian manufacturing sector’s Purchasing Managers’ Index (PMI) rose to 54.9 in February from 54 in January. A reading above 50 is indicative of expansion in activities. Though there has been an improvement in manufacturing activity in February, input cost pressures remain a concern. Indians are facing the prospect of higher petrol and diesel prices once voting for the state election concludes.
  • The foreign institutional investors (FII) continued to be sellers and sold equities worth Rs 225,630 mn while Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 167,430

Things to watch out for next week

  • The report on US inflation, which is due on Thursday, will be closely watched by investors. Consumer prices increased at the quickest rate in over four decades from January to February. The future for US markets is clouded by geopolitical tensions, as Russia’s invasion of Ukraine has moderated expectations for how swiftly the Federal Reserve will tighten monetary policy in the months ahead.
  • Continuing FII selling, increasing prices of oil, food grains, and metals, and declining Rupee are leading Indian equity markets down. On Monday evening, polls for five states will close. We expect retail prices of petrol to increase substantially immediately. Exit polls on state elections may drive the sentiments in the markets before the results are announced on 10th 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.”

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