Post Market views - August 22, 2022 - Reliance Securities

Mr. Mitul Shah - Head of Research at Reliance Securities.

Indian equities closed lower led by a sharp sell-off in banking and IT stocks, amid weakness in U.S markets last Friday. Nifty declined 1.5%, while broader markets under-performed the main indices as Nifty Mid Cap and Small Cap fell 2% and 1.6% respectively. All sectoral indices ended in red. Nifty Metal plunged the most at ~3% followed by Nifty Reality and Nifty PSU Bank which were down 2.5% and 2.1% respectively. Meanwhile, according to the agriculture ministry, concerns have spurred as paddy sowing continues to lag since area under the key kharif crop was lower by 8.25% at 343.70 lakh hectare till last week of the ongoing kharif season.

U.S. equities ended lower snapping a four-week stretch of gains. The S&P 500 fell 1.2%, Dow Jones was down 0.2% while Nasdaq declined 2.6% for the week. Comments in recent central bank officials, combined with the release of the minutes from the Fed's July meeting, put the possibility of continued aggressive rate increases back in focus. The yield on the 10-year U.S. Treasury note rose to 2.987% from 2.879% on Thursday.

Despite a multiple headwinds like rising interest rate, monetary tightening and volatile commodity costs, the Nifty has outperformed global markets since Dec'21. While DII have started selling, FIIs bought worth Rs445bn so far in Aug'22 into Indian equites. The earnings season has ended with strong revenue growth while pressure continued on the margins due to commodity inflation. More downgrade seen in EPS compared to upgrades. We expect FII to remain net buyers as valuations are comparatively reasonable while India's growth is higher compared to many other nations. Though near-term negatives in terms of concerns of depreciating rupee, widening trade deficit and volatility in global crude prices continue to exert pressure on economy and equity markets, we expect strong economic rebound, normalized commodity prices, inflation within a targeted range and better visibility in 2HFY23E.

Source : Equity Bulls

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