Markets remained buoyant as NIFTY & SENSEX hit new highs with NIFTY above 18,500 & SENSEX above 61,000 for the first time ever. Liquidity remains strong both on the domestic front as well as foreign flows. The markets look over heated at the moment. We are in the midst of Q2 corporate earnings season & expectations are high. Any deviation from market expectation may lead to short-term correction in the respective sectors.
FIIs were net sellers to the tune of Rs.2568 cr in August 2021, followed by net buyers of Rs.913 cr in September. Till 14th October in the current month FIIs have been net sellers to the tune of Rs.2516 cr. With markets at such elevated levels, we could see some profit booking coming.
As per AMFI, net inflows into equity and equity-linked schemes stood at Rs.8,677.4 cr in September against Rs.8,666.7 cr in August. Investments into equity mutual funds remained steady, tracking the optimism in India’s stock market as speedier vaccinations improve demand for businesses in Asia’s third-largest economy. Contributions into systematic investment plans rose for the fifth straight month to an all-time high in September. SIP contributions; have breached Rs.10,000 cr (Rs.10,351 cr) in a month for the first time. Around 26.8 lakh SIP accounts opened in September, also a record. All mutual fund schemes saw a net outflow of Rs.47,257 cr in September, with average assets under management at Rs 37.4 lakh cr. Liquid funds saw a net outflow of Rs.48,379 cr in September, the biggest in a year. Such schemes are used by companies to park short-term cash and usually see a spike in redemption at the end of a quarter. Investors pumped into credit-risk funds for the fifth straight month in September.
Gold prices in India in September corrected around 4% while in August it fell around 2.1%. Gold price are trading ~$1750/oz in the international market. Current, dip in gold price is because of the US Dollar gaining strength after the Fed announcement in regard to bond tapering. However, the way crude oil price has been soaring in international market; it may lead to rise in global inflation in next few weeks that may force Fed to rethink over its announcement. Fast approaching festival season in India is also creating conducing milieu for gold investors. Power crisis in China has put global equity markets under pressure. If this crisis further continues, then equity investors may switch towards gold investments.
Global crude prices hit their highest in seven years as demand continues its recovery from the Covid-19 pandemic, boosted by more custom from power generators turning away from expensive gas and coal to fuel oil and diesel. The jet fuel market was buoyed by news that the U.S. will open its borders to vaccinated foreign travelers next month. Similar moves in Australia and across Asia followed. The International Energy Agency said the energy crunch is expected to boost oil demand by 500,000 barrels per day (bpd). That would result in a supply gap of around 700,000 bpd through the end of this year, until OPEC+, add more supply, as planned in January.
Consumer Price Index inflation (CPI) fell to 4.35% in September as against 5.30% in August 2021, as food prices cooled further. Food inflation dropped to 0.68% last month, significantly down from 3.11% in the preceding month. This was partly due to high base effect of last year as retail inflation had jumped to an eight-month high of 7.34% in September 2020.
Wholesale prices based inflation (WPI) eased to 10.66% in September from 11.39% in August, helped by moderating food prices even as crude prices witnessed a spike. WPI inflation remained in double-digit for the sixth consecutive month. Inflation in food articles eased for the fifth straight month, recording (-) 4.69% in September from (-) 1.29% in August. Inflation in the fuel and power basket was 24.91% in September, against 26.09% in the previous month. In manufactured products, inflation stood at 11.41% during the month.
Index of Industrial production (IIP) witnessed a growth of 11.9% in August as against 11.5% in July 2021, registering a recovery as a result of the base effect due to the COVID-19 lockdown that affected economic activity last year. Last year in August, the IIP had contracted 7.1%. The manufacturing sector’s output surged 9.7% in August 2021. While the mining output climbed 23.6%, power generation increased 16%. During April-August this year, the IIP grew 28.6% against a 25% contraction in the same period last year.
The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) stood at 53.7 in September, up from 52.3 in August. While production, new orders and input buying have continued to expand, growth has stagnated. Purchasing managers’ index (PMI) for services stood at 55.2 in September, falling from August’s 18-month high of 56.7. With the pandemic receding, there was a boost to consumer footfall. The Composite PMI Output Index — which measures combined services and manufacturing output — was at 55.3 in September, little-changed from 55.4 in August.
The RBI in its bi-monthly meeting on 8th October has decided to keep the repo rate unchanged at 4% for the eighth straight meeting. The MPC continues to maintain its ‘Accommodative’ stance. The reverse repo rate will also continue to earn 3.35% for banks for their deposits kept with RBI. It also maintained the FY22 GDP growth forecast at 9.5%. The RBI has enhanced the IMPS (Immediate Payment Service) transaction limit to Rs.5 lakh from Rs.2 lakh.
According to the Federation of Automobile Dealers Associations (FADA), retail sales of passenger vehicles (PV) in September increased by 16.32% yoy to 233,308 units. Two-wheeler sales, however, slipped 11.54% to 914,621 units last month. Commercial vehicle sales surged 46.64% to 58,820 units. Volume growth was strong in this segment on the back of pickup in demand from infrastructure and construction sectors, coupled with improving freight utilization levels. Three-wheeler sales saw a rise of 50.90% to 36,612 units.
The gross GST revenue collected in the month of September 2021 stood at Rs.1,17,010 cr, which is 23% higher than the GST revenues in the same month last year. CGST collections were Rs.20,578 cr, SGST Rs.26,767 cr, IGST Rs.60,911 cr (including Rs.29,555 cr collected on import of goods) and cess Rs.8,754 cr (including Rs.23 cr collected on import of goods). The average monthly gross GST collection for the second quarter of the current year has been Rs.1.15 lakh cr, which is 5% higher than the average monthly collection of Rs.1.10 lakh cr in the first quarter of the year.
As the frontline indexes are hitting all-time highs, we feel we have to be a bit selective in stock picking. Currently daily COVID cases are declining to around 15k/day as Mumbai reported no deaths in a day for the first time since April last year. Thus we must be cautiously optimistic going ahead over the next few months. Vaccinations have gradually picked up, but we still have a long way to go. Expectations are we may manage to get most of the adult population vaccinated by the first quarter of 2022. There are reports of launching vaccination for children and how that plays out needs to be seen. This could be a good buying opportunity if there is a marginal correction in markets.
In the coming weeks, the domestic market awaits the release of quarterly earnings to determine the market trend. Banking will be the key sector under focus in the coming days as the NPA trend will be closely monitored in Q2 results. With the expectation of a strong recovery in corporate earnings, any deviation from market expectation may lead to short-term correction in the respective segments. The markets are hitting all-time highs but the auto sector & PSU sector are laggards in the market. We remain positive on these two sectors over the next one year & feel that they will catch up with the broader markets.
As we come out of the 2nd covid wave, we need to closely monitor the key economic indicators over the next few months. We are witnessing steady recovery, but an impending 3rd wave could put a spanner in the wheel. GST collections are inching up slowly & IIP numbers are steady on a low base.H2FY22 growth numbers will be lower on a higher base of last year. Higher than expected inflation numbers coupled with sky rocketing fuel prices remain a concern. With high government spending to bring economy back to normal post covid, any cut in tax on fuel looks unlikely. This could also lead to a possible rate hike by RBI in December. We strongly advise investors to continue their SIPs in equity funds & if possible increase the amount. The markets are elevated & look over heated & thus focus should be on stock picking.
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.