Nifty Stumbled from a Record High on the Concern of Subdued Earnings

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Nifty Stumbled from a Record High on the Concern of Subdued Earnings amid a Surge in Raw Material Costs

India’s benchmark stock index Nifty (NSEI) closed around 18178.10 Thursday; slips almost -0.48% on negative global cues as Wall Street Futures retreated from overnight high amid elevated oil/bond yield and lingering uncertainty over Biden’s fiscal stimulus and tax hike plan. Although corporate, capital gain and highest personal tax may not be increased significantly; there may be a tax on buybacks and billionaires.

Overall, Nifty stumbled from the new lifetime high 18604.45 made on Tuesday (19th October) to 18049.15 Thursday and underperformed Dow/SPX/Wall Street Futures on a variety of probable reasons:

·         At TTM EPS 654.10 (consolidated) and 18600 Nifty levels, the Nifty PE is around 28.45, historically in the bubble zone
·         The concern of muted report card by index heavyweight Reliance Industries Ltd (NS: RELI )
·         Subdued report card from various consumption stocks like Hindustan Unilever Ltd. (NS: HLL ), Asian Paints (NS: ASPN ), and Havells India Ltd (NS: HVEL ), showing the adverse impact of elevated raw material cost (oil/energy/other commodities) to the bottom line (inflation of raw materials concern and poor pricing power/inability to pass on the higher raw material cost to consumers due to intense competition and fear of demand erosion)
·         Growing LAC/LOC tension between India-China/Pakistan (ahead of UP/Punjab and other state elections early 2022)
·         SEBI big-data analysis report/action buzz for possible manipulation (by big traders etc) for volatile/abnormal movements in scrips like IRCTC (NS: INIR ) etc.
·         A slight pickup in fresh COVID cases amid ongoing festival/holiday season

In brief, after a record run, Nifty is technically extremely overbought and thus required some excuses for a healthy correction. And thus Nifty corrected to some extent. But on late Thursday, Nifty also recovered from the session low after the Indian Government announced +3% DA (Dearness Allowance to compensate rising inflation) to almost 11.58M Federal/Central Government workers/pensioners, equivalent to pay hike and fiscal stimulus worth around Rs 9.5B for one year.
The Indian Government Cabinet approves the release of an additional instalment of Dearness Allowance to Central Government employees and Dearness Relief to Pensions, due from July’21. This will be an increase of 3% over the existing rate of 28% of the Basic Pay / Pension. This will benefit about 47.14 lakh Central Government employees and 68.62 lakh, pensioners. The impact on the exchequer on account of both Dearness Allowance and Dearness Relief would be Rs.9,488.70 crore per annum.

The Union Cabinet, chaired by Prime Minister Shri Narendra Modi, today has approved to release an additional installment of Dearness Allowance to Central Government employees and Dearness Relief (DR) to pensioners w.e.f. 1.7.2021 represents an increase of 3% over the existing rate of 28% of the Basic Pay / Pension, to compensate for the price rise. This increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission.  The combined impact on the exchequer on account of both Dearness Allowance and Dearness Relief would be Rs.9,488.70 crore per annum.  This will benefit about 47.14 lakh Central Government employees and 68.62 lakh, pensioners.

On Thursday, the Indian market was also boosted by private banks, especially Kotak Bank, ICICI Bank (NS: ICBK ), Axis Bank (NS: AXBK ), and HDFC Bank (NS: HDBK ) on the buzz of acquisition of Citi Bank India consumer business/retail assets worth around Rs.15B. As a pointer, in mid-April, Citibank announced it will exit consumer/retail operations in 13 countries across Asia and Europe, including India to focus on the institutional and wealth management business in these markets. In India, Citi Bank has almost 3M (NYSE: MMM ) HNI customers in retail, 2.2M credit cards and 1.2M bank accounts at Mar’20.

PSU banks also helped the market as the Federal government may infuse some capital to some of these banks and the market is also expecting faster privatization (at least partially) for these banks after progress on LIC and Air India IPO/privatization. Automobiles also helped amid reports of upbeat festive sales and plateauing of chip shortages.

But the market was dragged by techs (lower USDINR ), FMCG (subdued report card amid RM surge), metals (Chinese jawboning to bring metal prices down), energy (lower oil), infra, and realty (higher RM cost).

Technically, whatever may be the narrative, Nifty Future now has to sustain over 18555-675 areas for a further rally to 19625-20000 zones; otherwise, it may correct to 17950-675 areas. Looking ahead, growing tension at Pak and China LOC/LAC coupled with talks of ‘Surgical Strike’ (on Pak) ahead of UP/other big state election early 2022 may be a risk factor, while India’s EM scarcity premium and the appeal of 5D (democracy, demography, demand, deregulation, and digitalization) may be a wonderful opportunity to invest in blue-chip names under any volatility. Nifty may scale 20K by Dec’21-Mar’22 even after some healthy correction/consolidation.

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  • Tr Surendhar @Tr Surendhar
    Speaking about Loc tension angle great thumps up👍
    Like 0

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