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Inflation remains the core issue:

The markets in the month of June were volatile with consolidation and performed as per our outlooks expectation. The Indian market during the first half of the month remained sluggish throughout as the rate hikes and inflationary pressure continued to be a major drag but in later half of the month it recovered a bit and continued the sideways move for the rest of the month. The FII were sellers in the month of June and offloaded a massive more than 58k Crs worth of equity which beats the previous months 54k Crs and become the highest since the start of the pandemic in March 2020 but DIIs along with retail investors were able to soak up most of it and provided a strong support by buying 46.5k Crs of equity. The Indian market closed the month in a negative territory, with an downtrend of ~5%. Nifty closed out at 15800 levels and Sensex closed out at 53000 levels.

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Sectorial performance

Looking at the sectorial performance for the month of May, most sectors were in the red. Only a couple of sectors gave positive return, i.e Auto and FMCG, owing to increasing in rural demand due to expected good monsoon and significant headways made solving chip shortages and supply chain issue. The on-going conflict between Ukraine and Russia is still having unintended consequences throughout the world majorly due to elevated price of oil and gas as Europe tries to cut down its dependency on Russia. Pharma and chemical sector might face some headwinds in the near term due to pressure on their margins due to a rise in raw material costs. The Auto sector which was battered during 2021 due to supply chain concerns and covid is expected to revive and see demand increase towards the end of this year as well as next year. The sectors which can do well this month include Auto, consumer goods and Realty/Infra.

Important events & Updates

A few important events of the last month and upcoming are as below:

  1. The Federal Reserve in its last meeting on June 15 th decided to raise rates by 75 bps and maintained its hawkish stance which was as per the market expectation.
  2. Inflation data is going to be announced on 14 th July.
  3. India’s trade deficit widens to $25.64 billion in June owing to surge in petroleum and crude oil imports and depreciating rupee.
  4. Indian private sector continued to expand vigorously in June, aided and abetted by a scorching pace of growth in the services sector, as covid fears evaporated and PMI for the services sector came in at 59.2 in June.
  5. FOMC releases the minutes of its last meeting on 6 th July in which Fed will unveil details of what policy makers debated last month that may shed light on how they view the near-term path for interest rates amid surging inflation and signs of a slowing economy.
  6. India Vaccination program – India’s biggest vaccination drive update as on date, the number of Covid-19 vaccine doses has crossed 198Cr and about 66.5% of the population is fully vaccinated. This is becoming more important as there has been a resurgence of the virus in some parts of the world.

Outlook for the Indian Market

The fears of recession are causing global markets to drop but looking at the macro data available the possibility of recession is still not 100%. The India market especially has remained resilient amidst the   current turbulent geopolitical condition and looking at the PMI and auto sales, the economy seems to be growth in a rapid pace after getting battered during 2021 due to supply chain concerns and covid and the expected normal monsoon will boost rural demand as well. The Nifty 50 PE ratio hit 19.87x on 12th May 2022 for the first time this fiscal. It has hit a low of 18.92x on 17th June, the day streets witnessed a violent blood bath. Historically Nifty 50 PE trend exhibits that every time it falls below 20x, the 1 year forward returns have been higher, this along with increasing demand and reopening of Chinese economy gives us a reason to be even more optimistic hence the outlook for the Indian economy and market remains positive unless there is a major economic disruption. The outlook for this month on fundamental & technicals is explained.

Fundamental outlook: The month of July is expected to remain volatile with marco factors such as inflation, WPI etc. driving the markets. Companies will start releasing their 2 nd quarter earnings soon hence all eye will be on the companies margins, which will influence the market in the near term along with macro factors like inflation. In this month many major indicators were positive such as the services PMI which indicated revival of demand and expected rate hike but WPI and CPI numbers in the coming week will also determine direction of the markets. The cleansed balance sheets and improving asset quality of the banks is the reason for sectors to be largely optimistic.

Technical outlook:  The broader Indian market was in line with the global sentiment in the month of June but it was one of the better performing markets. Even though FII have been on a massive selling spree, the increasing DII and retail participation has increased the market resilience but the comings weeks are expected to experience elevated volatility as investors will be keenly monitoring inflation fig both CPI and WPI and the Fed rate hikes. Looking at the technicals there is immediate resistance at 16500 and major resistance around 17000 levels for the month of July. There is immediate support at 15200 levels and major support at 14600 levels. The RSI for Nifty50 is around 55 which signify that it is in a moderate zone.

Outlook for the Global Market

The US market was one of the worst performing amongst the global markets driven by slowing economic data, mixed PCE data. The consumer confidence index came out lower at 98.7, a new 16 month low, indicating that consumers were less confident now compared to 1985 which marked the start of the data collection period. The personal spending is also decreasing for the first time this year. US unemployment is at 3.6% but even though it is lower and has been quelling fears of recession, cracks are starting to appear as Tech firms, cryptocurrency brokerages, and real estate firms have all started to announce massive 10-20% job cuts so the near term outlook looks bleak. Euro zone inflation reached a new record high in June of 8.6% and hence The ECB has vowed to tackle the surge in prices and has said it will hike again in September, meaning its main interest rate could return to positive territory this year — the ECB has had negative rates since 2014. Eurozone has the highest risk of recession due to economic pressures from Russia’s invasion of Ukraine most notably over energy and food security which could push it into recession territory. The Chinese market was the best performing market in June as china starts reopening its economy and the near term prospects looks appealing but possibility of more Covid-19 lockdowns, the increasing tension between China and the US and its allies regarding world politics, which could turn out to be international trade issues are the risks involved.

Outlook for Gold

In the month of June, the Gold market performed positively around 1% and the demand for gold as a hedge against rising inflation still remains strong especially now since fears of recession are amplified. The outlook for gold remains slightly positive for the near term.

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What should Investors do?

Global markets would also be influenced by the inflation statistics for China which is due next week and the market is predicted to stay volatile due to a slew of expected market-moving events and In India market Q1FY23 earning season will drive the market sentiment majorly in the near term. For the coming month we expect the market to be volatile with sight positive bias. We would recommend the investors to not go for any aggressive investments and keep an eye out for the inflation figures and Q1 reports,  however you may look at adding companies with solid fundamentals.

Disclaimer:

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 : Market Surveillance Measures and its impact on stock market investing

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