Markets bounced back sharply over the last month by over 10% to 17900 NIFTY levels. Lower 10 year g-sec rates & inflation globally have eased nerves to some extent. Given the lower inflation print we expect rate hikes to slow down over next 3 months. Prices of crude among other metals & mining commodities declined sharply over the last fortnight due to fears of global slowdown which should help bring down inflation print further.
FII which had been selling heavily in Indian equities, to the tune of Rs.2.88 lakh cr in the first 7 months of this calendar year have finally turned net buyers. They are net buyers MTD to the tune of Rs.14821 cr till 12th August 2022. DIIs have been buying into the markets & with FIIs also buying we expect liquidity to go up. With interest rates & bond yields easing globally, we may see FIIs coming back into Indian markets.
As per AMFI data, the total assets under management for the mutual fund industry rose to Rs 37.74 lakh cr as of July 2022, compared to Rs 35.64 lakh cr. The debt funds saw net inflows of Rs 4,930 cr in July compared to net outflows of Rs 92,247 cr in the previous month. Contribution through systematic investment plans fell marginally to Rs 12,139 cr in July compared to Rs 12,275 cr in the previous month. Among equity funds, small-cap funds and flexi cap funds were prominent gainers as they received net inflows of Rs 1,779 cr and 1,381 cr respectively. Among debt funds, liquid funds and floater funds saw net outflows of Rs 7,692 cr and 4,681 cr respectively. Banking & PSU debt funds saw net outflows of Rs 2,809 cr. Overnight funds received net inflows of Rs 19,918 cr.
Gold, following ease in dollar index and cooling global inflation, climbed to 5-week high, logging around 1.37% weekly gain. Overall outlook for gold is positive and it may go up to Rs.53,500 levels on MCX in short term. Gold price is trading around $1,775/oz and may go up further in short term. Gold investors need to remain vigilant about dollar index, commodity prices, US retails sales data. The UK CPI, Eurozone CPI, and GDP data would also be on market participants’ radar and shall steer gold prices going ahead.
Brent Crude prices are on a downward trend at around $95/bbl, after economic data from China, the world’s largest crude importer, spurred fresh concerns about a potential global recession that could hit energy demand. In the United States, total output in the major U.S. shale oil basins is expected to rise to 9.049 mn bpd in September, the highest since March 2020, the U.S. Energy Information Administration (EIA) said in its productivity report. Investors also watched talks to revive the 2015 Iran nuclear deal. Oil supply could rise if Iran and the United States accept an offer from the European Union, which would remove sanctions on Iranian oil exports
Inflation in US the consumer-price index, a measure of what consumers pay for goods and services, rose 8.5% yoy in July, down from 9.1% in June. June marked the fastest pace of inflation since November 1981. Monthly, the CPI was flat in July after rising for 25 consecutive months, the result of falling energy prices such as gasoline. Core CPI, which excludes often-volatile energy and food prices, eased to 0.3% last month, down sharply from June’s 0.7% gain. British consumer price inflation rose to 10.1% in July, its highest since February 1982, up from an annual rate of 9.4% in June.
Consumer Price Index inflation (CPI) in India grew 6.71% in July, compared to the year ago period. Although retail inflation remained higher than the upper tolerance limit of RBI’s target range of 2-6% for a seventh straight month, it has dipped lower than 7% for the first time in four months. Inflation has been receding for the last four months; it had touched a high of 7.79% in April. The food and beverage inflation eased to 6.7% vs 7.6% in the previous month. The core CPI index that excludes food and fuel marginally softened to 5.95% from 6.02% a month back. However, inflation in the fuel & light group rose to 11.8% from 10.1% in June 2022.
Wholesale Price Index (WPI) eased to 15.18% in June y-o-y from 15.88% in May. The number has remained in double digits for the 15th consecutive month. For the fuel and power segment, the WPI number marginally eased to 40.38% in June from 40.62% in May as oil prices eased. Food inflation for June climbed to 12.41% as against 10.89% in the preceding month. The inflation in the manufacturing goods segment witnessed a decline to 9.19% in June as compared to 10.11% in May.
The Index of Industrial Production (IIP) fell to 12.3% in June against 19.6% in May. The June industrial growth figure is above the consensus estimate. IIP growth in June 2021 was 13.8%. Industrial growth prints in both May 2022 and June 2021 were high thanks to favorable base effects. The strong growth was led by the electricity and manufacturing sectors which grew by 16.4% and 12.5% respectively. The output of mined products rose by 7.5%. The growth was broad-based, with 21 of the 23 sub-groups of the manufacturing sector reporting a rise in production.
India’s manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, came at eight-month high as trends for output and new orders strengthen. The PMI rose to 56.4 in July as compared to 53.9 in June, therefore, remaining well above the 50-level separating growth from contraction for a thirteenth month. Services PMI Business Activity Index stood at 55.5 in July, from 59.2 in June, which was the highest figure in over 11 years. The latest reading indicated the slowest rate of growth in four months. The S&P Global India Composite PMI Output Index fell to 56.6 from 58.2 in June, highlighting the slowest increase since March. Manufacturing led the upturn with the quickest rise in production since last November, while growth of services activity eased to the weakest in four months.
As per Society of Indian Automobile Manufacturers (SIAM) PV sales during the month rose 11% to 293,865 units. A raft of new model launches in the SUV segment coupled with improving supplies of electronic and electrical components and a strong demand, have kept the PV sales in top gear for four months in a row. Sales of two-wheelers during the month advanced 9.6% to 13,81,303 units while that of three wheelers rose by 22.16% to 31,324 units yoy. Retail sales of commercial vehicle increased to 66,459 units in July 2022, up 27.32% yoy.
The Goods and Services Tax (GST) revenue collected in the month of July stood at Rs 1,48,995 cr, which is the second highest ever since the introduction of GST and up 28% yoy. June GST collections had risen 56% YoY to Rs 1.44 lakh cr. CGST collected in July stands at Rs 25,751 cr, SGST is Rs 32,807 cr while IGST is Rs 79,518 cr (including Rs 41,420 cr collected on import of goods). Cess collected is Rs 10,920 cr (including Rs 995 cr collected on import of goods).
The International Monetary Fund (IMF) slashed India’s growth forecast for 2022-23 (FY23) by 80 bps 7.4%, citing less favorable external conditions and rapid policy tightening by the central bank. The risk of recession is particularly prominent in 2023, when in several economies growth is expected to bottom out. The World Bank had cut India’s economic growth forecast for the current fiscal to 7.5% while the Reserve Bank retained its GDP growth forecast at 7.2% for the current fiscal, but cautioned against negative spillovers of geopolitical tensions and a slowdown in the global economy.
Globally high inflation, rising interest rates coupled with a slowdown is worrying as there are fears of recession. We feel major rate hikes are behind us & the pace of hikes if any will be slower going ahead as inflation is peaking. Crude prices are declining on slowdown fears & with expectations of sanctions being lifted on Iran, crude should decline further. GST collections have remained above Rs.1.4 lakh cr. IIP numbers are high on a low base and need to sustain while inflation is also cooling down. Most international currencies including INR are stabilizing against the USD & the free fall has been arrested. In addition to DII flows, with FIIs returning to Indian markets, liquidity is expected to remain strong. We strongly advise investors to continue their SIPs in equity funds & if possible increase the amount.
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Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 14 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.