A glimpse of hope?
The markets in the month of July were broadly on a rally and ended positively. Bulls have come back with a bang and ended the month of July on an extremely positive note with gains of more than 8%, this was due to increasing economic activity as well as falling raw material and oil prices because of anticipation of weakening demand . The FIIs have made a comeback towards the end of the month but broadly were net sellers in July with about 6.5k Crs worth of equity, which is the lowest since October 2021, and the DIIs soaked about 10.5k Crs. The Indian market was one of the best performing among its global peers with around 8% in the positive territory. Nifty closed out at 17100 levels and Sensex closed out at 57500 levels.
Looking at the sectorial performance for the month of July, all of the sectors performed positively with at least a 7% return. Among such positive performance, there were a few sectors that had stellar returns (>11%), they are Metals, Realty, Auto, Banking, and FMCG. The ongoing conflict between Ukraine and Russia in the background will still have some effect on energy prices and keep them elevated in the near term but decreasing raw material costs will reduce the pressure on company margins. Auto OEMs, FMCG players, steel majors, airlines, and paper companies have also already hiked their prices in response to the conflict. The sectors which can do well this month include Auto, Bank, and Tech.
Important events & Updates
A few important events of the last month and upcoming are as below:
- In the RBI’s MPC meet between the 3 rd to 5 th of August, the RBI has decided to increase the repo rate by 50 bps to 5.4%, above the pre-pandemic level of 5.15% – in line with expectations.
- The markets globally will be majorly influenced by the unemployment rate of the United States which as of the last published data remained steady at 3.6%, this is expected to increase slightly this month.
- India’s CPI number was 7.01% in July, this was a bit lower than estimates and shows that the peak might have been already reached.
- India’s trade deficit widens to $-31.02 billion, and exports were down from $37B to $35.24 billion in July owing to Government interventions to control exports of petroleum products and certain commodities due to domestic demand and inflation contributed to the widening of the trade deficit.
- Manufacturing PMI has risen to an eight-month high of 56.4 due to the combination of faster economic growth and softening inflation during July.
Outlook for the Indian Market
Macroeconomic factors will be driving the market, at least for this financial. Currently, It is expected that central banks in the US and Europe would rein in their hawkish stance in favor of supporting growth. Furthermore, the anticipation of weakening demand has brought down the prices of crude and commodities, and corporates expecting a recession to hit the global economy by the end of 2023 have caused the commodity and oil prices to dip and this spells good news for India, as the manufacturing index is expanding and companies will benefit as inflation gradually comes under control. The RBI has further increased the interest rate by 50bps since core inflation still remains high and this indicates that the clear focus of the central bank is on the withdrawal of accommodation with the intent of keeping inflation in check, while supporting growth But the tightening of the monetary policy for inflation control might cause a further slowdown of growth since much of the current inflation is directly caused by factors outside monetary control, that being said there are many positive indicators of the reviving economic growth so the outlook remains positive unless there is a major economic disruption. The outlook for this month on fundamental & technicals are explained.
Fundamental outlook: The month of August is expected to remain volatile as earnings season is on a full drive and companies with good cash flows and solid balance sheets are expected to perform well. Even though the retail auto numbers have dipped, the introduction of new models, especially compact SUVs is expected to aid growth and commercial vehicle growth still remains positive and has good demand mainly due to the Government’s infrastructure push. Corporate India’s ability to absorb and pass on the sharp inflation has been amply demonstrated in the first quarter. Going forward, companies will benefit, as inflation gradually comes under control.
Technical outlook: The broader Indian market was in line with the global sentiment in the month of July and among them, it was one of the better performing one. Even FIIs have started returning in search of opportunity, looking at India’s solid fundamentals when compared to other emerging markets. Looking at the technicals there is immediate resistance at 17700 and major resistance around 18300 levels for the month of August. There is immediate support at 16000 levels and major support at 15400 levels. The RSI for Nifty50 is around 63 which signifies that it is in a slightly over-bought zone.
Outlook for the Global Market
The US had two consecutive quarters of declining GDP but It’s not in a recession yet since employment and capital goods shipments have been high. As was widely expected, the US Federal Reserve boosted the benchmark Federal Funds rate by 75 basis points. It’s now targeted at an interval of between 2.25% and 2.50%. This is the second consecutive 75-basis-point increase this year. Coming to the Eurozone, In the second quarter, real GDP growth in the 19-member Eurozone was better than expected and was up 4% from a year earlier and up 0.7% from the previous quarter, especially in three key Mediterranean economies. This comes as Europe prepares for a possible severe shortage of natural gas in the winter months that would almost surely push the region into recession. High inflation is still an issue in the eurozone even though core inflation has reduced from June to July and if this continues the ECB will be pressured to tighten monetary policy. China’s wobbly economy stumbled further at the start of the second half of the year, with factories unexpectedly switching back to the slow lane, a slump in the property sector deepening, and job cuts still a widespread menace. The second-quarter gross domestic product grew just 0.4% on the year, but authorities have so far refrained from massive stimulus despite fears of a global recession, uncertainties from the Ukraine war, and the prospect of recurring COVID lockdowns at home.
Outlook for Gold
In the month of July, the Gold market performance was muted with a slight positive bias but the demand for gold as a hedge against inflation remains strong and hence it can be a small portion of the portfolio. The outlook for gold remains neutral in the near term.
What should Investors do?
Indian businesses have seen a steady net profit-to-sales growth over the past year and are sitting on piles of cash (as evident from the cash coverage ratio) and Although investments are growing sporadically partly because of supply chain disruptions and global uncertainties, industry and service activities remain robust, as indicated by the recent PMI numbers hence for the coming month, we expect the market to be volatile with sight positive bias. We would recommend investors not to go for any aggressive investments and accumulate fundamentally good stocks with strong balance sheets. We would also recommend investors to keep an eye on inflation numbers as it is clear that the RBI will be aggressive in reigning in on Inflation.
This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in
Also read: Investors guide to corporate credit rating