Overall given that the texture of the market has changed and there is a bit of conviction in the market to say that the worst is behind us. Have we made a floor around that 16000 mark? Looks like yes although it is always difficult to predict the market. In fact if we look at the last eight months the trend every time has been that the market has corrected and then it recovered and when it looked like the market had bottomed out then in the next correction it fell further low.
So we went right up to from the peak of 18500 odd in October to 15200 mid of June.
But this time the factors are different and finally the commodity prices have corrected. We have had sharp corrections in steel, we have had sharp corrections almost 17-18% correction in aluminium, we have had similar 15-16% correction in copper so that is a good thing.
Oil also finally has corrected although yesterday it was up again. So a lot of things have opened up. First off all this commodity correction has seemingly given a breathing space to RBI that finally their inflation target may not be breached.
Also, the government restructured a lot of duties earlier it had done on the metal sector this week so that has also given some breathing space in terms of fiscal deficit numbers that resulted in 10-year government security yields coming down in the market by almost 15 bps.
So on the macro level breathing space has come in but now comes the micro starting with the result season.
The result season for the quarter one is not likely to be good. The good thing is it is known in the market so to that extent it is probably built in when we fell to 15200 odd Nifty level.
We are at the cusp of the earning season so that remains the key question to ask especially when it comes to the sectors like IT and consumption. We have got the initial updates coming in in terms of the provisional quarterly data. What do you make of it? Is it going to be one of those watch out quarters for consumption and FMCG names which the Street has already factored in? Yes, we can probably call it a wash out but the situation is not that bad. We have had quarterly updates or a preview of the results coming in from quite a number of consumption companies and that is on the expected lines with some of them showing degrowth in volume terms in the single digit.
Also, some of them are turning towards growth but only marginal growth in the low to mid single digit.
On the value side of course you do move into the high single digit because the price hikes were passed on but the price hikes obviously caused inflation and along with the subdued sentiment resulted in demand not being there.
So yes it is expected that this quarter would not be as good for the consumption sector. Of course it has been built into the market.
In the beginning of June we had almost in succession most of the FMCG stocks hitting their 52-week low one after the other within a gap of a week to 10 days. We have seen a recovery this week along with the market which has been good for consumption.
So the first quarter subdued numbers are built in going forward but the hope is that this correction which has come in more specific to the agri commodities will stay and as a result will give some breathing space to the FMCG companies.
The key is whether they pass on the correction in the raw material prices to consumers or not. Even if they do not directly pass on they know how to do the business so they will introduce some kind of a scheme, offers, benefits as a result will try to push the sales.
Also, the monsoon progress will be something to be watched out for as of now it is marginally below normal but that is too soon to call it so.
If that remains normal we will have rural sentiment improving so that will also result in the demand coming back in place. So the hope is that if this correction in the agri prices stays then we will have good numbers for the September quarter and that is what the market seems to have started to build in and as a result consumption sector prices have started to move up.
When crude is coming down we relate it to the fact that inflation could be coming down globally as well and it is a positive point for India. But going forward in the next week we have the CPI data coming in. What is your expectation on that front and if there is some kind of a relief on the numbers which sectors you feel can be linked very well on the upside? Oil prices globally have started to come down from a peak of $120. Finally this week they have corrected to 100 odd levels .
For an oil import dependent economy it is very important that the oil prices stay down. Our comfort would be around $70-$80 to a barrel which is the place from where we are still far away but yes it will still have an impact on the inflation globally as well as in India.
The other part unfortunately is that the rupee has weakened sharply both due to the dollar index and because of the macroeconomic fundamental factors. Also, we have seen continuous FII outflows from India. So all these factors put together now will induce imported inflation.
Our imports are far more than our exports so that will bring in probably a fresh wave of inflation which will get counterbalanced by the fact that metals and agri commodity prices have corrected.
So we will see that correction getting passed on in terms of consumer prices so these will be the variables that will be the net-net effect in the CPI numbers that will be released.
The next month’s numbers of CPI inflation might have an impact on the oil prices but of course let us also keep in mind that the oil prices on ground have not corrected in India.
Nifty Realty has been inching up and doing quite well from the last three weeks. We saw coming up with great numbers. Any of those ancillary plays that you feel like could be the next movers because those cement packs and the cement counters were also quite beaten down. Do you feel that momentum could catch up over here soon? Yes, so the real estate sector is a sector where the improved consumption demand has been continuing.
Real estate demand is something which did not fall although there was a rise in the interest rate leading to increase in the interest rate on the loans mortgages. So I do not necessarily have a stock pick in that sector.
Auto ancillary stock called Sona BLW is a stock that looks good to me. The company has been doing very well and will continue to do well. Hopefully its June quarter number should also come well.
Quite a large part of the percentage of sales should come from the electrical vehicle which is a growing area. The stock should do well over the medium term.
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