Market Outlook By ICICI Securities PMS
August 1: The impact of higher interest rates is clearly seen in the demand slowdown
in US and Europe. US consumer sentiment index has declined the lowest in last 60
years.
India’s exports particularly in footwear & other leather goods, cotton yarn, readymade
garments and handicrafts declined due to higher inventory in US retail chains. Indian
Exports in June rose 16.8% YoY at $37.9 bn slower than 20.4% in May.
The rise in dollar and recession fears have led to decline in commodity prices which
can limit US inflation to some extent. India imports 60% of its palm oil consumption
and it has corrected by 24%. Infact Indian government has also imposed higher duties
on wheat and steel exports and on Gold import to reduce the impact on inflation.
In India with monsoon picking up, there is an expectation of lower inflation numbers
going forward.
RBI has also taken steps to shore up rupee which can restrict some inflationary
trends. Efforts from RBI were required as forex reserves in India have depleted
by $50 bn from $643 bn to $593 bn due to FIIs outflows seen in last one year. Also
more than 40% or $267 bn of external debt out of total $621 bn is due for repayment
in coming 9 months which will further pressurize rupee. Markets are likely to witness
limited downsides as crude oil prices have cooled off and commodity user sectors
like Consumer goods, FMCG, Auto and Cement can see recovery.
On the positive front, with the opening of economy as Omicron seems to be receding,
the PMI services increased to 59.2 in June pointing to strongest expansion since
April 2011. GST collections have remained above Rs. 1.40 lakh cr for 4th straight
month and direct taxes to Rs. 14 lakh cr which is almost 48% jump vs FY21. Investment
and credit cycles are picking up. Banks have witnessed 11% credit growth from 5.7%
last year
Source: ACE Equity - Newsletter (August 1, 2022)
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