The Acceleration of a Digital Boom

Markets gave a stellar move on Friday and reclaimed lifetime highs. And rightly so the fear gauge indicator VIX is at 17 from levels of 86 back when Covid hit India last year. A lot has changed in the past year as 2020 was the year of the UNKNOWN with uncertainty around transmission rate, possibility of vaccine, impact on economy etc., but this time there is more understanding of the situation. The start of 2020 was all about technology and PSU growth, then it transitioned to Special Purpose Acquisition Companies (SPAC), then it moved to bitcoin and commodities and now we are witnessing some amount of cooling. India Inc. undertook a number of cost cutting measures the last year but now the scene has taken a U turn. There have been spikes in raw material costs, packaging costs, higher fuel and freight costs whose impact will be felt in numbers going ahead, however, pent-up demand post the current lockdown should balance out margins going forward. India attracted over $80Bn in FDI in the past year which is the highest ever and the coming months could also continue to see inflows if the Fed and central banks continue to inject liquidity into the system. In all likelihood, this could be a year which will fully manifest all of these measures undertaken by both financial and non-financial institutions to contain the pandemic.

Just as the Industrial Revolution, the years going forward could see a Digital Revolution. The theme that has attracted the most traction in the past year is technology and digitization. Be it supply chains, robo advisory, e-commerce sales, fintech, digitization has been implemented in all aspects of life. But this is just the beginning and automation is the way of the future and companies undergoing such structural changes should be ideal secular bets for the long term. Although Nifty will experience hiccups on the way up, but the longer bull rally is here to stay as the digital, infra, consumption, real estate boom continues to pick up pace. A sustenance of this boom will drive Indian markets from a $3Tn Mcap to the next level in line with the developed nations such as China who has a $11.4Tn market cap and the US with $47Tn Mcap. The secular story is intact but in near term the excesses in valuation need to get corrected for a healthy next leg up.

Event of the week

Fuel prices especially petrol breached the coveted Rs. 100/litre mark. This follows a 14-day streak as OMCs kept revising fuel prices upwards across India. The hikes are mostly in-line with the gradual rise in global oil prices as Brent Crude prices touched $70/bbl. Support from US economy and employment data diffused concerns around the impact of the rise in Iranian oil supply, which had earlier prevented oil prices from moving upwards. Overall global bullishness and demand are keeping oil prices at current levels. But investors need to be cautious as the OPEC meeting slated for June 1 will dictate the supply, production and price indications going ahead.

Technical Outlook

Nifty50 index crossed lifetime highs and closed the week on a positive note. However, this week’s upmove was slow and lacked strength. It is likely the benchmark index could face resistance at higher levels. The bulls are getting tired as the index is trading much higher than its mean levels. Hence, a brief corrective dip cannot be ruled out. 15,160 is the immediate support level for Nifty.

Nifty50 Update 28 May 2021

Expectations for the week

Inflation continues to be on everyone’s radar and it will be interesting to witness the impact of the opening of states on the economy. True picture of the damage by the second wave will only be visible in the Q1 results but until then management commentaries will continue to guide the Street. Pushing benchmark indices still higher into the unknown will certainly be a reality but there can be hurdles on the way up as there are no concrete triggers in place yet and markets might look for a strong reason before showing aggression in volumes. Therefore, investors should seek selective bets, and wait for corrective moves before investing for long term. Nifty50 closed the week at 15435.7, up by 1.7%.

Markets afloat despite inflation!

Markets have witnessed a volatile week especially since the WPI inflation numbers hit their 11-year high at 10.49% for April. While higher inflation raised some concern, its near-term impact was effectively neutralized by the reducing number of COVID-19 cases in India. Although FPIs have been net sellers since last month, India still stands at the top of the charts among other emerging markets with the highest 12M FPI equity inflows of over Rs. 36,618 Crs as of April 30, 2021. Brazil ranks second with around Rs. 10,811 Crs as per CLSA data but Indonesia, Taiwan, Thailand, South Korea etc. have seen negative net flows. In fact from April 2019 Indian markets have seen continuous infusion by FPIs barring a few months which shows that a few months of FPI outflows could cause corrections in the markets but at the end of the day Indian markets are still strong enough to keep markets afloat. Additionally, with rising confidence among domestic investors of an impending recovery, the benchmark indices can continue to counter any pressure. RBI’s first tranche of G-Sec buying program further allowed room for growth among the Indian bond markets, enabling the central bank to sustain the current low rate environment while maintaining yields within the 6-6.5% range for the 10-year bond.

While inflation as a concern is playing out in the broader markets with rising commodity prices squarely to blame, the result season has different themes unfolding. India is amidst a demand pull scenario which is driving earnings and re-rating stocks. Production activities have been normal in the consumer goods, durables and retail side, but the mobility issues have caused logistical constraints which has resulted in depleted volumes and lower realisations. Consumption in discretionary has seen a drastic decline because despite liquidity, the common man still continues to focus his spending only on essentials. This spare liquidity in the hands of retail investors is being diverted towards gold which has been gaining immense traction as an effective hedge against rising inflation. While there is temporary domestic pressure on demand due to lockdowns, the trend in merchant exports has been improving strongly with a 195% jump YoY and a 17% jump since April 2019. Inventory pile up is currently being managed by exports and going forward investors can keep various export oriented stocks on their radar. It would also be a good time to look at investments in gold from a portfolio allocation standpoint. An easier way for retail investors to invest in gold would be to lap up the current sovereign gold bonds in the market which also have a decent interest component attached.

Event of the week

The second wave has temporarily sidetracked government’s ambitious strategic divestment plan of Rs. 1.75 Lakh Cr for the current fiscal. Be it the due diligence process for Air India and BPCL stake sale or divestment of SCI and BEML or partial stake sale in LIC through an OFS, all scheduled activities have been delayed. Despite such uncontrolled setbacks, government managed to sell a majority part of SUUTI’s residual stake in Axis Bank via OFS which might garner close to Rs. 4000 Crs. Therefore, although derailed, 80-90% target still looks achievable which can still save some damage on the fiscal front.

Technical Outlook

Nifty50 index closed the week on a positive note and crossed the previous short term resistance of 15050. Although it is trading very close to its all-time highs but it is still below the rising channel and has not given any directional move to break it yet. Nifty needs to close decisively above 15200 to start a fresh bullish upmove within the channel. As long as it does not take a decisive direction, we maintain a sideways to mild bullish outlook.

Nifty50 Update 21 May 2021

Expectations for the week

Indian benchmark indices are expected to continue their indecisive phase in the near term as global macros are finding a grip amidst the pandemic. Adding to this, the Fed at its April meeting indicated that they would discuss scaling back on the massive asset purchase program if the current recovery pace continued. With a hint towards liquidity tapering, bond markets continued to witness sell-offs and going forward if there is lower buying support from the Fed, the impact would be clearly visible in price up-moves. Turnaround in results can keep the Street going atleast for a couple of weeks more. Investors can remain on the sidelines and wait and watch till the arrival of monsoon. Nifty50 closed the week at 15,175.30, up by 3.39%.

Metals & Markets – The Talk of this Summer!

Markets have continued to witness pressure this week after a fairly bullish run the past week. The range bound movement continued yet again given the indecisiveness among the institutional players and the inflation worries coming in from developed countries. US markets continued to witness profit booking mainly because of inflation spooking investors and Indian indices bore the same brunt. While the inflationary situation is definitely looming over us given the sky-high global commodity prices and rampant liquidity in the system, but the situation still seems to be under control at the current moment. Volatility due to inflation fears and second wave of Covid-19 uncertainty will continue to keep market participants on their toes in the coming week as well.

Speaking about inflation, the key factor adding fuel to the fire is existing metal prices which have remained unfazed by these pressures and have continued to zoom past their multi-year resistance levels. Metals, especially Steel, has been on the rise since the last year when the pandemic hit shores. The Nifty Metal index has delivered over 250% gains since March-lows last year, outperforming leading sectors throughout. The global demand continues to remain robust but production has still not caught up. Moreover, China which has a share of over 50% in the global metal trade, has been focusing on reducing their production activities in-line with their goals of carbon neutrality by 2060. With these production cuts in steel, copper etc., supply-side constraints will exaggerate further, cataclysmically pushing prices higher. The rise in commodity prices will therefore play an instrumental role in inflationary tendencies going forward but the real question is how long will the rally or “so to speak super cycle” continue. Given the multiple tailwinds of sturdy demand and production cuts along with P/B ratio of a couple of steel stocks which had been historically trading over 2.3x at the top of their cycle, are currently still trading around 1.8x. Therefore, our best case scenario is the momentum can still continue for some more time with short term corrections and traders can enter on dips and exit at appropriate resistance levels. However, fresh investments should be avoided as it can turn out to be risky for long term investors from here onwards, as despite the super normal profits stock prices are refusing to go up.

Event of the week

Domestic Mutual Fund AMFI numbers of April show a second consecutive month of net inflows for open-ended equity schemes. Despite it being a fall from March inflow numbers, it corroborates well with the fact that DIIs have been net buyers in the equity segment to the tune of Rs. 11,360 Crs during April, the highest buying seen since June 2020. While the inflow trend remains positive it also means that domestic investors continue to invest into equities on every dip and are keeping markets afloat, helping it swim through the hiccups in the near term. Investors can therefore continue to approach long-term investing from a stock specific perspective rather than complete index buying.

Technical Outlook

Nifty50 index behaved in line with global indices and closed in red on a weekly basis. The index also failed to retest the immediate resistance zone of 15000, as it is facing supply pressure at higher levels. The benchmark index is lacking directional move after a prolonged rally and is now contained within a consolidation range of 14400 to 15000. BankNifty and other indices are also forming similar patterns. We maintain a bearish bias on the markets in the short term atleast till the immediate resistance levels aren’t broken.

Nifty50 Update 14 May 2021

Expectations for the week

Markets have shown tremendous resilience despite the rising cases but sustainability at higher levels seems difficult if the situation worsens. Further, with fear of inflation looming over developed markets, domestic bourses may adjust to global indices and remain under pressure in the near-term. Stock specific volatile movement on quarterly earnings cannot be ruled out at this point in time. And going forward, investors must pay heed to management guidance to pick and choose fundamentally strong stocks. In the near term correction is likely to continue. Nifty50 closed the week at 14,677.8, down by 0.98%.

Yet Another Range-bound Week for Dalal Street!

Indian markets largely remained range-bound in the week as the tug-of-war continued between the bulls and the bears. The recent surge in Covid cases to around 4 lakhs plus added to the turmoil in many MSMEs and SMEs but stock markets seemed unrattled. However, worried RBI announced a set of measures to improve liquidity for the healthcare sector and the smallest stakeholders, the most vulnerable level of the pyramid. Although not a moratorium, the stance of the central bank has been on providing help in a staggered manner to the needy. In the process they have permitted banks to park this surplus healthcare related liquidity at 40bps higher than the reverse repo rate, so lenders are also not at a disadvantage. Infact, the new restructuring proposal applicable to borrowers with aggregate exposure of up to Rs. 25 Cr not only provides them the time to match the cash flow with repayment obligations but also ensures liquidity support. All in all, these measures definitely picked up the mood of the financial stocks mid-week.

Benchmark indices also remained elevated because of other macro aspects such as GST revenue whose collection hit record highs of Rs. 1.41L Crs in April and headline manufacturing PMI which managed to stay above the 50-mark, an expansion zone, for 9th months in a row. Both these factors signal buoyant economic recovery in the offing. The increase in income will entail reduction in fiscal deficit and larger room for expansionist measures. But the rising cases could puncture the pace and a rapid inoculation drive is the only cure to end this viscous cycle. There is definitely more confidence from India Inc. this time around and the Q4 numbers are also showing signs of resilience in our economy. Investors are therefore advised to accumulate stocks with robust cash, free cashflows and less leverage for a longer horizon while ignoring the short term hiccups.

Event of the week

Steel manufacturers reported a record number of deliveries in Q4 with growth coming in from increased prices and elevated demand. China’s decision to remove the rebate on VAT charged on exports eventually makes exports from China less lucrative paving way for Indian steel manufacturers. Further, the Chinese ministry plans to reduce overall domestic steel production, a move towards their carbon neutrality goal by 2060. All this led to an increase in HRC prices thereby boosting realisations for steel makers. The decision to ramp-up infrastructure globally, higher steel prices and supply constraints combined added to the sharp performance in steel players.

Technical Outlook

Nifty50 index closed the week on a positive note, however, the price is still oscillating within a consolidation range. The market breadth also remained quite strong and many stocks are witnessing a fresh upmove or continuation in uptrend. But as long as Nifty trades below the lower end of the rising channel, there are chances of this rally being a bull trap. The short-term support and resistances are now placed at 14400 and 15000, break on either side will dictate the short-term trend. We suggest traders maintain a neutral bias on the market and keep strict stoploss below immediate support.

Nifty50 Update 07 May 2021

Expectations for the week

The coming week is a short one but markets may still find it difficult to hold ground and can sway directionless within the range. The week will bring a host of economic data from India industrial production numbers to inflation rate to manufacturing production figures. But these numbers can be taken with a pinch of salt as markets are a forward looking and the figures are of the past. Any fierce selling on part of FPIs may take markets lower unless the domestic players can maintain the dynamics. Investors are advised to stay put and increase allocation to equities on every healthy correction. Nifty50 closed the week at 14,823.15, up by 1.31%.