The Nifty remained volatile during the week in the 10,600-10,800 range. Global markets were under pressure after the United States imposed a 25 percent tariff on $34 billion worth of Chinese imports. China fired back, accusing the United States of violating WTO rules and setting off “the largest trade war in economic history to date”. Markets shrugged off the U.S.-China trade war and bounced back. Back home, an increase in minimum support prices (MSP) for key crops took the market higher on hopes of a buoyant rural economy.
For the week, the Nifty rose 58 points or 0.54 percent to end at 10,773, while midcaps (down 0.38 percent) and small caps (up 0.17 percent) underperformed. The rupee remained weak despite a decline of more than 1 percent in the dollar index and closed near 69.
Eyeing a general election early next year and to assuage agitating farmers, the Cabinet approved a proposal to hike MSPs for the kharif season. The annual increase in MSP for most crops has been far steeper than annual increases announced over the last three years. The higher MSPs will be inflationary unless there is a cut in supply chain costs, which seems difficult. However this will also add to rural demand, which has already been strengthening. Higher inflation will be factored in by the RBI in the second half of the year, making further rate hikes more likely.
The much awaited Reliance Industries annual general meeting took place during the week with Mukesh Ambani outlining the future plan of action across various business verticals. The focus clearly was on the consumer business led by the Gen Next of the Ambani family. These verticals currently contribute 13 percent of the consolidated EBIDTA but are expected to grow multi-fold over the next seven years and contribute nearly as much as the energy and petrochemical businesses.
Markets closely followed the maiden budget of the JD(S)-Congress alliance government in Karnataka. Chief Minister H.D. Kumaraswamy announced the much-expected farm loan waiver of 340 billion rupees while he increased taxes on petrol, diesel and liquor to cover the loss.
Automobile sales in June were strong across segments albeit on a low base due to destocking undertaken by dealers prior to the implementation of GST last year. Tata Motors was in focus after the Jaguar Land Rover CEO warned the British government a “bad” Brexit deal could jeopardise its investment plans and may even force it to exit the UK. Tata Motors shares were already under pressure the previous week amid concerns of a tariff threat by U.S. President Trump for all U.S. imports of cars assembled in the European Union. The stock has lost 14 percent in two weeks.
Metal stocks were in focus as U.S. tariffs on Chinese goods took effect on Friday. Titan traded weak after the company recorded jewellery sales below internal targets and said it will post muted growth in the June quarter.
On the macro front, the seasonally adjusted Nikkei India Services Business Activity Index rose to 52.6 in June from 49.6 in May. The composite PMI output index rose to 53.3 in June from 50.4 in May, supported by output growth in both manufacturing and service sectors. India’s manufacturing conditions improved in June at the strongest pace since December 2017, supported by sharp gains in output and new orders in 2018. The Nikkei India Manufacturing PMI rose to 53.1 in June from 51.2 the previous month.
Earnings season begins next week with results of TCS and IndusInd Bank on Tuesday and Infosys on Friday. The progress of monsoon rains will be closely watched. Geopolitical issues will continue to be in the limelight and the trade spat between United States and China will be closely monitored.
The IT index has been outperforming driven by rupee depreciation versus the dollar. The first quarter is a seasonally strong quarter for IT companies due to higher billing days and allocation of budgets to programmes. This, along with benefits from currency movement, is expected to result in improved recovery for the sector.
On the macro data front, the government will announce IIP data for May on Thursday with U.S. core inflation data for June and minutes of the ECB’s last meeting also being released the same day.
We are seeing a revival in select mid-cap and small-cap stocks, possibly signalling a bottoming out. It is time to plough fresh funds for excellent medium to long-term returns.
Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.
The views expressed in this article are not those of Reuters News.