Samco Newsletter

[Rudresh]

Market Mode & Mood: Wait & Watch

The Indian equity market displayed a mixed performance in the past week🫨, with the benchmark indices, Sensex and Nifty 50, closing flat due to profit-booking in blue-chip stocks and significant Foreign Institutional Investor (FII) outflows😵. The Nifty 50 experienced a 0.8% decline, closing at 24,205.35, though down from the previous week. However, sustained inflows from Domestic Institutional Investors (DIIs) and decreased oil prices🛢️helped mitigate losses in key indices. The week’s performance paused the four-week downward trend for the Sensex and Nifty.

Overall, the Indian equity market exhibited a cautious and volatile trend during the Diwali week, with investors closely monitoring global economic conditions and domestic factors. While the benchmark indices remained relatively stable, the divergent performance of mid-cap and small-cap stocks highlighted the sector-specific dynamics at play.

Market swings on earnings downgrade

The Nifty 50 index has experienced a significant decline of 6% since October 1st, driven by a sharp downward revision in FY2025 Earnings Per Share (EPS) estimates. As per media reports, Bloomberg’s consensus Nifty EPS for this fiscal year was slashed by 13% in October, a substantial downgrade from the 2% reduction in September. This divergence between Bloomberg’s estimates and the Nifty bottom-up estimate highlights analysts’ waning confidence in an imminent earnings recovery📈.

Nearly half of the Nifty companies have faced EPS cuts exceeding 1% in October, according to a report from Emkay Global Financial Services. The Bloomberg FY2025 EPS estimate plummeted by 40% from its April 1st level, underscoring the severity of the downward revision.

A key concern is the sluggishness🐌in broad-based consumption, particularly urban consumption, despite a gradual improvement in rural consumption. The banking and non-banking finance sectors also exhibit areas of concern.

Bloomberg’s aggressive earnings downgrade likely triggered significant selling by foreign portfolio investors in the cash market during October, exacerbating the downward pressure on indices, even as domestic institutional investors partially offset this selling.

The week ahead for India

The upcoming US election🗳️, a closely contested race between Democrats and Republicans, is set to dominate the week. With both sides neck-and-neck, particularly in swing states, the outcome remains uncertain. The implications for India, especially its equity markets, are significant.

Market sentiment has been dampened by a combination of factors: high valuations, geopolitical tensions, and China’s new stimulus package. Corporate earnings are also under pressure due to rising costs and supply chain disruptions caused by the ongoing conflicts in Ukraine and the Middle East. Oil prices, though currently stable, could escalate if geopolitical tensions worsen. Foreign institutional investors (FIIs) are pulling out, signalling underlying concerns about growth. While rural demand has shown resilience, urban consumption is weakening. The auto sector🚗, though positive, still has pockets of concern. With many big companies yet to announce their quarterly earnings, uncertainty persists.

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Disclaimer: This content is for educational purpose only. https://sam-co.in/6j

[Rudresh]

All eyes on Fundamentals now!

A major event, the US election, is out of the way, and the focus would move to the economy and fundamentals📑.

The recent US election results sparked a brief market rally, but the week concluded with minor losses for Nifty and Sensex, down 0.69% and 0.28%, respectively🐻. The Federal Reserve cut its benchmark lending rate by 0.25% to a range of 4.5-4.75%, aiming to sustain the US economic expansion. This follows a 0.5% cut in September. Despite a positive global sentiment due to the US Fed’s rate cut, the Indian equity market witnessed a decline in three out of five trading sessions.

Trump’s win: A mixed bag for India

While some Indian analysts are optimistic about a second Trump term due to his relationship with the Indian Prime Minister and proposed tariffs on Chinese goods, there could also be potential drawbacks😬. Trump has criticised Indian protectionism and advocated for improved treatment of American companies in India.

Additionally, India’s manufacturing sector faces structural inefficiencies, relying heavily on Chinese inputs and lacking the value-add seen in competing Southeast Asian nations. Further concerns include the potential tightening of H1B visa regulations and the impact of Trump’s stance on birthright citizenship on Indian families in the US📕.

However, a second Trump term could bring benefits such as a resolution to the Ukraine war, reduced sanctions on Russia, and increased hydrocarbon production, leading to lower fuel prices. While lower fuel prices would provide short-term benefits to India, the environmental consequences of increased hydrocarbon production could have detrimental long-term effects on the Indian economy.

Indian Service Sector Experiences Growth in October

India’s service sector saw significant expansion in October, with the HSBC India Services Business Activity Index rising to 58.5 from a ten-month low of 57.7 in September. This growth was fuelled by robust demand and strong sales pipelines, leading to increased business activity📈.

The service sector also saw a surge in new export sales, attributed to increased demand from clients in Africa, Asia, the Americas, the Middle East, and the UK🌎. Employment in the sector experienced its most rapid growth in 26 months, with approximately 13% of surveyed companies reporting job creation. While input price inflation rose to a three-month high📅due to higher food and wage costs, the overall inflation rate remained below the long-term average.

The HSBC India Composite Output Index, which combines data from the manufacturing and service sectors, also rose to 59.1 from 58.3 in September, indicating growth in both sectors🏭. The growth in new business inflows in both sectors contributed to increased sales and employment overall. A PMI reading above 50 indicates expansion, while a score below 50 denotes contraction.

So, what awaits next week?

The upcoming weeks are crucial for the market, with many companies set to announce Q2FY25 results. Macroeconomic indicators like India’s industrial and manufacturing production, inflation, and US inflation will be closely watched by analysts to gauge the market’s future trajectory.

To stay updated on actionable insights, visit :-: https://tinyurl.com/2yuwjf5t

[Rudresh]

The market hits a speed bump

The Indian equity market experienced a significant downturn📉, primarily driven by concerns about subdued second-quarter earnings and domestic challenges. The benchmark NIFTY 50 index plummeted by 2.55% during the week, while the BSE mid-cap and BSE small-cap indices suffered even steeper declines of 3.89% and 4.61%, respectively. Foreign Institutional Investors (FIIs) continued their selling spree, withdrawing $2.5 billion in November🗓️so far.

Sectorally, the IT index bucked the trend, rising 1.5% on the back of expectations for robust external demand💪fuelled by a weak rupee and potential US tax benefits. However, all other sectors witnessed declines😩.

India’s inflationary woes

India’s economic landscape is grappling with the persistent threat of inflation💸. Retail inflation, as measured by the Consumer Price Index (CPI), is edging closer to the Reserve Bank of India’s (RBI) upper tolerance limit of 6%. A significant contributor to this trend is the surge in food prices triggered by heavy rainfall that disrupted crop production🌾.

While some experts anticipate a decline in inflation to the RBI’s 4% target in FY26 as weather-related factors stabilise, the recent spike to 6.2% in October, primarily driven by soaring vegetable prices🫛, has raised concerns. As such, this development diminishes the likelihood of a rate cut in the upcoming December meeting. The weakening rupee further exacerbates the situation, potentially leading to higher oil import costs and subsequent fuel price increases⛽.

Despite these challenges, the RBI’s optimistic GDP growth forecast of 7.2% for 2024-25 suggests confidence in economic resilience. However, a significant slowdown in growth could prompt a shift in policy priorities.

India’s IPO market in a slow lane

The year 2024 has been a record year for IPOs in India🔔, both in terms of total issue size and number of offerings. The total issue size has surpassed the previous decade’s high of Rs 1.31 trillion in 2021, reaching a staggering Rs 1.38 trillion.

But that said, recent months have seen a decline in IPO activity and subscription numbers. Global economic uncertainties, rising interest rates, and tighter liquidity have made investors cautious.

While larger IPOs like Hyundai Motor India and Swiggy garnered mixed responses from investors and tepid listings, smaller IPOs from companies like Arkade Developers and BLS E-services witnessed strong demand and significant listing gains.

However, experts remain optimistic about the long-term prospects of the Indian IPO market, though the current slowdown raises concerns about its immediate future😟.

Adani Group likely to expand into the metals sector

Adani Group is gearing up to disrupt India’s metals sector with a planned $5 billion investment over the next 3-5 years, as per media reports🔭. This ambitious move, following their successful entry into the cement industry, aims to challenge established players like Vedanta, Hindalco, and Tata. The focus will be on mining, refining, and producing copper, iron, steel, and aluminium, leveraging synergies with existing businesses in renewable energy, transmission, logistics, ports, and infrastructure.

While their copper plant, Kutch Copper, is already operational, they plan to invest an additional $1 billion to double its capacity. This initial $5 billion investment is separate from the funds already allocated to Kutch Copper, signalling a significant commitment to the metals sector🏭.

Week ahead

The market’s weakness🐻was attributed to a combination of factors, including disappointing earnings, FII outflows, and uncertainties surrounding global and domestic economic growth. Despite this, domestic investor confidence remained strong, with monthly Systematic Investment Plan inflows reaching a record high of over 25,300 crores in October 2024. A few things to watch out for next week are the last leg of the Q2FY25 earnings season, the long-awaited NTPC Green Energy IPO listing and manufacturing, and Services PMI data.

To stay updated on actionable insights, visit :_https://tinyurl.com/2yuwjf5t

Disclaimer: This content is for educational purpose only. https://sam-co.in/6j