Posted at 9:34 AM , on August 2, 2020
The Nifty may have closed the week below the psychological resistance of 11,200, but the rally has still been quite strong. Over the months of June and July 2020, the Nifty rallied by 16% with the gains divided equally between the two months. What were the triggers for the Nifty rally; the best 2-month Nifty performance since the year 2009.
Drivers for the Nifty
While the Nifty performance in the months of June and July at 7.35% and 7.49% were almost the same, there were a number of subtle underlying shifts that happened in these months. In the month of June, it was the private banks and the PSU banks that were the stars. However, with the results season setting in, July was more a return to reality for financials. Instead, the month of July was dominated by IT and the Pharma space. These two sectors had lagged in the month of June. The June quarter results worked in favor of the IT industry. Infosys, Wipro and HCL Tech reported flattering numbers for the quarter while TCS managed to hold operating margins at attractive levels despite pressure on the top line. Auto stocks did well in both the months as the factories finally started churning out cars. However, the bounce comes on the back of a sharp fall over the last 2 years and must be taken with a pinch of salt. Metals were a rare surprise in July as hopes of a sharp revival in China GDP gave hopes of revival in metal stocks.
Posted at 9:31 AM , on August 2, 2020
The latest half-year report of the World Gold Council (WGC) has brought out some interesting trends in gold demand across the world. The overall demand for gold is down 6% at 2076 tons in the first half of 2020. That is not a surprise considering that gold prices are at an all-time high. Gold in the international spot market scaled $1950/oz, breaching the previous peak of 2011. So the 6% fall in gold demand is fine. But, what is really surprising is how the components of demand for gold have shifted.
Sharp fall in jewelry demand
Over the last 20 years, the average gold consumption for jewelry purposes has been over 1000 tons in the first half. That has fallen drastically to 572 tons in the first half of 2020. It is not just about the price of gold. Back in 2011, when the price of gold was above $1900/oz, the jewelry demand had been closer to 900 tons. The difference in 2020 is that the high gold prices have also been accompanied by a growth slowdown due to the Coronavirus pandemic. Unlike the slowdown of 2008, this time around the economic weakness has manifested in the form of economies like the US contracting by 33% in the Jun-20 quarter. In addition, the lockdown has resulted in the loss of jobs, a sharp reduction in income levels, and also a tremendous loss of purchasing power. This has deeply impacted consumption. Major markets like India have seen compression in jewelry supply and also demand.
Posted at 9:26 AM , on August 2, 2020
It is a well-known fact that FIIs sold in excess of Rs.125,000 crore in equity and debt in the month of March. However, post-Mar-20, the flows into equity have been more or less positive. However, FIIs continue to sell in the debt market. In fact, in the Jan-Jul 2020 period, FIIs sold Rs.108,000 crore of debt in the Indian markets. What exactly is driving the aggressive selling by FIIs in the debt market? It is not about FII limits at all because FIIs have not used up even 50% of their available limits in G-SECs and in corporate bonds. There are 3 factors driving debt selling by FIIs.
All about negative real rates
The real rate of return is what investors earn on their investment after inflation is factored in. Till one year back, Indian bonds offered real bond yields above 4% making them very attractive by global standards. However, over the last 1 year, the bond yields have fallen to below 5.8% and the inflation has shot up closer to 8%. As a result, the real return on bonds has become negative. It is interesting when you compare the real rates of Indian debt with other countries. Other than Turkey, India has one of the lowest real returns on debt in the world. Even mature economies like Japan, EU region, and Australia are now offering real rates of returns that are better than India. As a result, most of the risk-off flows into debt are moving away from India into a developed market, which offers better real yields on the debt.
Posted at 10:52 AM , on July 13, 2020
|Trigger for the Week
||How will it Impact?
|The Coronavirus tally continues to remain at elevated levels
||Daily cases are still above the 22,000 mark and that will be an overhang on the equity markets
|IIP de-growth for May 2020 came in at (-34.71%)
||This is better than April, but markets will be keener on seeing June and July numbers for assurance of growth
|Yes Bank FPO opens on 15 July and the pricing has been conservative
||The success of the FPO will determine the future of Yes Bank which urgently needs to shore up capital
|Rossari Biotech IPO hits the market on 13 July after gap of 4 months
||This is the first IPO since SBI Cards and, despite good anchor demand, IPO response will be a key factor
|Markets will be watching first cues from COVAXINE trials
||While human trials are on, the August 15 deadline looks steep and any success would boost pharma stocks
|After TCS, the Infosys results will be in focus during the week
||TCS revenues were lower than, but not as bad as street estimates. A good show from Infosys will be IT positive
|Easing tensions on the Indo-China border will be a macro positive
||With armies retreating to old positions, the truce seems to be on and the markets have less to worry about
|Big earnings numbers expected during the coming week
||Big results for June quarter include Infosys, Britannia, Wipro, HDFC Bank, HCL Tech, Cyient and Mindtree
|The 43rd AGM of Reliance on 15 July will be a key trigger point
||The AGM is expected to lay out a detailed plan on becoming zero debt by Mar-21 and could be critical
|FIIs and DIIs remained net sellers during the week, ahead of IPOs
||The next week will be crucial as there are two major IPOs scheduled and could impact FII and DII flows
|Inflation cues and trade data are expected during the week
||While food inflation cues will be awaited, trade data will be the key to check if there is a trade bounce
|Rupee continued to show strength and bettered the 75/$ mark
||This is good news for FII flows into debt as that makes up for lower yield levels on bonds
|Nifty 10,800 levels could be the big resistance to break in the week
||The Nifty will need to break above 10,800 with good volumes to sustain the rally towards 11,000 levels
|Key global macro data points need to be watched during the week
||US Inflation, Retail sales, jobless claims, EU IIP, ECB Rate, China trade and IIP and Japan IIP and rates will be key
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Posted at 3:59 PM , on July 10, 2020
The Nifty has traditionally undergone a shift to reflect the market in a more comprehensive way. The latest shift in the Nifty index will introduce insurance companies for the first time into the indices making them more reflective and also improve the quality of Nifty earnings.
Insurance makes an entry
The latest round of changes in the Nifty is likely to be all about insurance. It may be recollected that insurance companies were listed on the Indian bourses just about 3 years back. Today there are over six insurance companies that are listed and actively traded on the stock exchanges. Let us look at the major shifts first. The first shift is likely to be HDFC Life coming into the Nifty index in place of Vedanta. The exit of Vedanta was, anyways, a foregone conclusion. With Vedanta Resources PLC planning to delist its Indian subsidiary, the only thing left was the approval of majority of the shareholders. With nearly 70% of the shareholders approving the delisting the only option was for the exchanges to delist the stock. The other shift will be SBI Life replacing Zee Entertainment in the Nifty. Zee had been largely an underperformer in the market and had been in the news for the wrong reasons including the near default. SBI Life has emerged as one of the largest insurance players in India outside of LIC and these two players look best poised to play the bancassurance model effectively in the insurance space. What about flows?