By Mr. Mitul Shah- Head of Research at Reliance securities.
U.S. equities rallied on Friday after four-day losing streak led by better-than-expected retail sales and a surprise earnings beat from Citigroup. On Friday, the S&P 500 surged 1.9%, the Dow Jones added 2.2% while Nasdaq climbed 1.8%, despite strong rally on Friday, the market closed lower for the week, with S&P 500 fell 0.9%, the Nasdaq dropped 1.6% and the Dow jones slipped 0.2%. The yield on the benchmark 10-year Treasury note ticked down to 2.929% from 2.957% on Thursday. Strong results from Citi lifted shares of banking sector peers to post the best intraday rally for the sector since May. The mega bank reported an 11% jump in revenue to $19.6bn, one day after disappointing financials from JPMorgan and Morgan Stanley. Meanwhile, the retail spending rose 1% in June from May, after witnessing a decline in the prior month. Moreover, the consumer sentiment index published on Friday by the University of Michigan, increased to 51.1 in July from its all-time low of 50.0 in June. In Asia, China's Shanghai Composite fell 3.8%, and Hong Kong's Hang Seng declined 6.6%. China recorded its weakest growth rate in more than two years, a measure of the costs imposed on the world's second-largest economy by Beijing's zero-tolerance approach to Covid-19.
On Domestic front: The Indian equities ended in red for the week on fears of macroeconomic instability. For the week, the Nifty declined 1.1%. Broader markets outperformed the main indices as Nifty Mid Cap rose 0.64% while Nifty Small Cap was largely flat. Sectoral indices ended mixed for the week. Nifty Energy gained the most at 2.5% followed by Nifty Consumer Durables which was up 2.4%. Nifty IT and Nifty Service Sector were the major laggards which declined 6.3% and 2% respectively. The earnings season has picked up its pace and investor await on earnings results from major companies next week. So, far India Inc has witnessed high costs and reduction in profit margins. On the macro front, the central banks of several countries including China, Japan, Euro area, Indonesia, Turkey and South Africa will meet separately to decide on the interest rates and monetary policies. The European Central Bank is set to raise interest rates for the first time in a decade. The UK's Prime Minister, Boris Johnson has resigned on 7th July and the country will witness a change in leadership amid updates on unemployment and inflation. US housing market data, Canada inflation and speeches by Australian central bank officials are the other key economic events. Moreover, the flash PMI data for major economies across the globe will be released.
Inflationary pressure is a major concern and fears of a recession is looming. India's CPI inflation stayed above 7% in June, while the U.S recorded a 41-year-high inflation at 9.1%. Major central banks around the world are likely to consider a steep hike in interest rates in order to tackle elevated price levels. Additionally, recent data suggested that consumer sentiment across the globe continues to be low. India's depreciating rupee, widening trade deficit, selling pressure from FIIs and volatility in global crude prices are augmenting the economic and financial impediments. We expect strong economic rebound, normalized commodity prices, inflation within targeted range and better visibility in 2HFY23, which would transform. We expect FII inflows to return by end of 1HFY23, while the DII investments would continue in FY23. Sectors like Automobile, Capital goods, Consumer would be in focus in FY23.