On the global front, benchmark indices in Hong Kong and Shanghai were down as Chinese tech and education stocks fell sharply under regulatory pressure. The US Federal Reserve kept the benchmark interest rate unchanged at the record-low level of near-zero amid growing concerns over rising inflation and the rapid spread of the Delta variant. The European Central Bank (ECB), too, kept its key interest rates unchanged.
On the domestic front, the month saw a sharp improvement in economic activity as most of the states eased restrictions with declining trends in daily COVID-19 cases. This led to an improvement in high-frequency economic indicators. During the month, the Foreign Institutional Investors (FIIs) were net sellers of Indian equities to the tune of USD 1.7Bn, while Domestic Institutional Investors (DIIs) were net buyers to the tune of USD 2.47Bn.
Domestic corporate profitability has been the positive surprise element during the pandemic over the last year. The clear trend that has emerged is the big becoming bigger and consolidation being visible across industries. Despite a Covid situation, the overall corporate profits to GDP ratio improved from a low of 1.6% to ~2.6% in FY21. We are in the midst of the Q1FY22 corporate earnings cycle. Despite the impact of the COVID second wave and state-wise lockdowns in April and May 2021, the reported numbers so far have been in line with expectations.
Key Events:
Nifty (+0.3%) closed marginally higher after trading in a tight range during July.
While domestic Covid cases remained under control (sub-50k), delta-variant concerns led to global market fall, dragging Indian markets too momentarily.
China Tech regulatory issues led to EM risk-off also weighed on India.
Citing a slow recovery in consumer confidence because of the 2nd wave and a slow vaccination program, the IMF cut India’s FY22 growth forecast to 9.5% from 12.5% estimated in April.
Headline print for June at 6.26% was substantially below consensus, driven by weakness witnessed across core and food CPI. That said, food ex vegetable inflation still rose to a 6m high of 6.6%, despite a favourable base.
~39% of India’s districts received average rainfall by July-end, while ~34% received excess / significant excess. The remaining ~27% received deficient/large deficient in Rajasthan, Gujarat, UP & Odisha.
FIIs again turned net sellers to the tune of -$1.9bn (after two months of net inflows), which was more than offset by DII buying (+$2.5bn), mainly by the domestic mutual funds who had their highest single monthly deployment in Jul’21 since Mar’20.
For more information, please check our presentation on the monthly market outlook.