In an interview with ETMarkets, Nigam said: “The weakness in stock prices comes amid a slump in underlying metal prices due to growing concerns over inflation globally and uncertain demand outlook from China and also US Fed is increasing interest rates very aggressively which has triggered the fear of recession,” Edited excerpts:
On a weekly basis, Sensex and Nifty50 closed flat but for the month of June the cut is closer to over 4%. What led to the price action?
The month of June has been a roller coaster ride for Nifty50 as it fell close to 5% which is the highest ever since march 2020. Metal shares witnessed the biggest fall on the back of export duty levied on steel products by GOI.
fell more than 16 per cent whereas a crash in aluminum prices led to a more than 15 per cent fall in . Investor sentiments were hit after the release of US May inflation data which showed CPI rising to 8.6% which is the highest ever since 1981.
Central banks around the globe are looking for liquidity tightening measures through rate hikes to curb the situation of rising inflation.
Moreover, the month of June has witnessed the largest amount of FII selling i.e. Rs 58,112 crore since April 2021.
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What does the June F&O expiry tell us about the trading pattern for July series? Which are the critical levels that one should watch out for?
In the June month F&O Expiry, the Nifty50 closed at 15780.25 levels with a fall of 2.4 per cent. This weakness was led by sectors like Energy & Banking.
The June series was highly volatile amid weak global cues such as rate hike, depreciating rupee, increasing 10y bond yield in US & worries over inflation & Stagflation, FII selling also continued during the period.
For the July series, we believe markets will remain volatile due to fluctuation in the commodity prices.
From July onwards, IT companies are likely to declare their Q1 results. We believe many companies will face margin pressure on the operating front and we should also focus on their growth outlook.
For the Nifty, we believe it will follow the trend of the US market but 15100 and 16200 are the crucial support & resistance to deciding the direction of the market.
We believe investors should be cautious before making a fresh position.
Metal sector was the worst hit in June with a loss of more than 10%. Hindalco, Tata Steel fell about 20% in one month. What is weighing on the sector and will the weakness continue in July?
In June, shares of metal companies were under pressure with Nifty metal index down by 12.60 per cent and S&P BSE Metal Index down by 14.08 per cent.
Among individual stocks, Tata Steel and Hindalco slipped by 17.87% and 19.86% and
and from these indices were down by around 28.48% and 9.74%.
The weakness in stock prices comes amid a slump in underlying metal prices due to growing concerns over inflation globally and uncertain demand outlook from China also US Fed is increasing interest rates very aggressively which has triggered the fear of recession.
Finally, due to the recent interest rate hike cycle and downtrend in metal prices have temporarily dampened the bullish sentiment on steel stocks and might result in near-term stock price volatility.
There are 11 stocks that fell more than 10-20% in the last month. What should investors do? Time to buy the dip or the weakness could continue?
Post covid, Indian markets have outperformed other markets like European and China markets which is one of the reasons why FIIs have sold so much in this year and reasons like rising inflation, higher interest rates, and risk of inflation made investors cautious.
It is better to be defensive in such a market scenario for quite some time, but we believe that the Indian market is at the cusp of revolution.
These small corrections are part of the journey which gives investors a good opportunity to make fresh entries or accumulate quality stocks at every dip.
All the above-mentioned stocks are fundamentally strong, and their growth drivers are still intact as India is in between a multiyear bull cycle and the Nifty may resume its uptrend soon.
Any top sectors which could be in focus in July?
Auto Sector. We believe Auto sectors may witness an up move as most of the sector challenges are now receding. We have seen some demand momentum from past few months in auto sales, the commodity prices (RM for auto sector) have corrected sharply which will lead to increase in gross margins of auto companies.
Also, the semiconductor issue is easing gradually which will ease the supply chain challenges of the auto sector. Domestic manufacturing, infra and capital goods:
India can potentially become the hub of global manufacturing by 2030. The introduction of the PLI scheme aiming at boosting domestic manufacturing which is in line with PM Modi’s vision of ‘Make in India’ Bharat is in focus.
Government initiatives such as PM
Shakti, national infrastructure pipeline and national monetization schemes are aimed to fasten the pace of road construction.
NHAI aims to construct 25,000km road projects in FY23 at an average pace of 50km per day.
Budget 2022 focuses on railway infrastructure. Government is planning to launch 400 Vande Bharat express trains in the next 3 years. We believe above mentioned sectors may outperform in medium to long term.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)