Thoda Thoda?
In this edition: Moderate gains, big changes small impact, rate hikes and pauses
During the week ending June 9, the market experienced moderate gains in a volatile environment. This was influenced by a variety of factors, including the Reserve Bank of India's cautious stance on inflation in line with expectations, decreased involvement of foreign investors, and unexpected interest rate hikes by the central banks of Australia and Canada. These developments have created uncertainty regarding the upcoming meeting of the US Federal Reserve next week.
During the week ending June 9, the BSE Sensex witnessed an increase of 78.52 points, closing at 62,625.63. Similarly, the Nifty50 saw a gain of 29.3 points, ending at 18,563.40. In terms of market segments, the BSE large-cap index remained unchanged, while the BSE mid-cap index grew by nearly 1% and the small-cap index experienced a gain of 1.6%.
As anticipated, the Monetary Policy Committee (MPC) of the Reserve Bank of India maintained the repo rate at 6.5% and continued with its "withdrawal-of-accommodation" stance. The central bank kept its GDP growth forecast for the fiscal year 2023–24 at 6.5% but slightly revised down its inflation projection for the same period by 10 basis points to 5.1%, which still exceeds the target of 4%.
In terms of sector performance, the Nifty Capital Goods index rose by 5%, the Power index increased by 3.3%, and the Auto index went up by 1.5%. Conversely, the information technology index declined by 2.5%, and the FMCG index witnessed a decrease of 1%. The BSE small-cap index gained 1.6%.
International Markets
On Friday, the S&P 500 closed higher but below its session highs, as a rally in Tesla failed to generate broad market enthusiasm ahead of the Federal Reserve's policy meeting and upcoming inflation data. The S&P 500 extended its winning streak to four weeks, marking the longest streak since July-August 2022, with a weekly gain of 0.38%. The Nasdaq Composite also notched its seventh consecutive week of gains, while the Dow Jones Industrial Average recorded a weekly gain of 0.33%.
Factors such as a rally in mega-cap stocks, better-than-expected earnings season, and expectations of the Federal Reserve nearing the end of its rate-hiking cycle have provided support to Wall Street throughout the year, despite concerns about a potential recession and persistent inflation.
Traders are predicting a 72% chance of the Federal Reserve keeping interest rates unchanged in its upcoming policy meeting, with consumer price data expected to influence expectations for future Fed actions. There is already a 50% probability priced in for a 25-basis-point rate hike in July.
The CBOE Volatility Index, which reflects market fear, reached its lowest level since February 2020 before recovering slightly.
Declining stocks outnumbered advancing ones on the NYSE and Nasdaq, while the S&P 500 and Nasdaq Composite recorded new highs and lows for the week.
Market Movers
1. Indian Economy To Grow By 7% This Fiscal: Chief Economic Advisor
The Indian economy is expected to experience growth ranging from 6.5% to 7.5% in the current fiscal year, driven by robust investment growth and the efficiency gains resulting from rapid digital transformation. According to Dr. Nageswaran, the economy has rebounded impressively after the pandemic and it is highly likely that the GDP growth rate for the fiscal year 2022-2023, currently at 7.2%, will be revised upward in subsequent data revisions.
Dr. Nageswaran emphasized that the Indian economy's positive medium-term growth prospects can be attributed to the government's sound macroeconomic policies, structural reforms such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC), as well as the focus on infrastructure development and digitization. These factors have facilitated sustained long-term growth without encountering significant challenges. He expressed optimism that based on the progress made thus far and assuming further reforms, the Indian economy has the potential to consistently grow between 6.5% and 7% by 2030.
Regarding capital expenditure (capex), Dr. Nageswaran stated that the private sector is poised for strong investment growth due to improved corporate and bank balance sheets, which have enhanced their lending capacity and supported the government's capex push. In the medium term, investment will continue to be a key driver of growth. He also highlighted that increased investment will contribute to manufacturing output expansion, and initiatives like public digital platforms, as well as policies such as the PM dynamic, National Logistics Policy, and production-linked incentive schemes, will further support economic growth.
2. ICAR Signs MoU With Amazon Kisan To Empower Farmers
The Indian Council of Agricultural Research (ICAR) and Amazon Kisan have signed a Memorandum of Understanding (MoU) to leverage their respective strengths and collaborate in guiding farmers on the scientific cultivation of various crops to achieve optimal yield and income.
Under this partnership, ICAR will provide technological support to farmers through Amazon's network, aiming to enhance farmers' livelihoods and improve crop productivity. The collaboration with Amazon Kisan program will ensure that consumers across India have access to high-quality fresh produce.
The current focus in Indian agriculture highlights the significance of secondary agriculture to provide better returns for farmers. The MoU emphasizes the importance of critical inputs in agriculture and season-based crop planning. ICAR will work closely with Amazon to share technologies, enhance capacity building, and facilitate the transfer of new knowledge to benefit farmers.
3. Fuel Demand In May Increases By 8% Month-On-Month
In May, India's fuel consumption, which serves as an indicator of oil demand, increased by 8% compared to the previous month, reaching approximately 20.03 million tonnes, according to data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry.
Specifically, sales of gasoline rose by 16.4% to 3.35 million tonnes, while sales of diesel saw a growth of around 5% to 8.22 million tonnes compared to the previous month, as indicated by the data released on Wednesday.
4. Power Ministry Seeks Market Coupling For Electricity Exchanges For Price Uniformity
The power ministry in India has officially requested the Central Electricity Regulatory Commission (CERC) to initiate the market coupling process, aiming to achieve price uniformity across multiple electricity exchanges in the country. This decision comes in response to calls from stakeholders who believe that coupling could lead to a more streamlined and consistent pricing structure.
Currently, India has three power exchanges, with the India Energy Exchange (IEX) holding a dominant market share of 99.9% in terms of total trading volume. However, the implementation of market coupling could provide an opportunity for other exchanges to gain traction in day-ahead and real-time trading. Market coupling would involve consolidating bids from all exchanges through a market coupling operator, resulting in a single, integrated solution that promotes efficiency and fairness in the marketplace. The power ministry's move to advance the market coupling process reflects the government's commitment to promoting competition and creating a level playing field in the electricity sector.
The request made by the power ministry will now be reviewed by the Central Electricity Regulatory Commission, which will assess the feasibility and potential benefits of market coupling. If approved, this development could have a significant impact on the Indian power sector, potentially transforming the trading landscape and facilitating increased market participation from diverse stakeholders.
Research?
A Well Balanced Portfolio
A well-balanced portfolio refers to a diversified investment strategy that aims to minimize risk while maximizing potential returns. It typically involves spreading investments across various asset classes, such as stocks, bonds, cash, and other alternative investments, to reduce exposure to any single investment or market.
Here are some key characteristics of a well-balanced portfolio:
Asset Allocation: The portfolio includes a mix of different asset classes based on the investor's risk tolerance, time horizon, and financial goals. This diversification helps to mitigate the impact of market fluctuations on the overall portfolio performance.
Risk Management: The portfolio is designed to manage risk by spreading investments across multiple sectors, industries, and geographic regions. By doing so, the impact of any negative events or downturns in a specific area can be minimized.
Investment Time Horizon: The portfolio considers the investor's time horizon, which is the length of time they plan to hold their investments. Longer time horizons may allow for greater exposure to higher-risk, higher-return investments, while shorter time horizons may require a more conservative approach.
Rebalancing: A well-balanced portfolio is periodically rebalanced to maintain its desired asset allocation. Rebalancing involves selling or buying assets to bring the portfolio back in line with the target allocation, ensuring that the portfolio remains diversified and aligned with the investor's goals.
Regular Monitoring: Successful portfolio management involves regularly monitoring the performance of investments and making adjustments as needed. This may involve analyzing economic trends, market conditions, and individual investment performance to make informed decisions about the portfolio's composition.
Investor's Risk Profile: A well-balanced portfolio takes into account the investor's risk tolerance, which reflects their comfort level with volatility and potential losses. The asset allocation should align with the investor's risk profile to ensure they can weather market fluctuations without significant emotional distress.
It's important to note that a well-balanced portfolio is a personalized concept and can vary from one investor to another based on individual circumstances, financial goals, and risk preferences. Working with a financial advisor can help determine the most suitable asset allocation and investment strategy for a specific investor's needs.
How to build a well-balanced portfolio?
Building a well-balanced portfolio involves several steps. Here's a general guide to help you get started:
Set Financial Goals: Determine your financial goals, such as saving for retirement, buying a house, or funding your children's education. Knowing your objectives will guide your investment strategy.
Assess Risk Tolerance: Evaluate your risk tolerance by considering factors like your age, income, investment experience, and comfort level with market fluctuations. This assessment will help determine the appropriate asset allocation for your portfolio.
Determine Asset Allocation: Decide on the mix of asset classes that aligns with your risk tolerance and financial goals. Generally, asset classes include stocks, bonds, cash, and alternative investments like real estate or commodities. The allocation will depend on your individual circumstances and may change over time.
Diversify Within Asset Classes: Within each asset class, diversify your investments to further reduce risk. For example, in stocks, consider investing in companies from different sectors and geographic regions. In bonds, diversify by investing in government, corporate, and municipal bonds.
Choose Investments: Select specific investments that align with your asset allocation and investment strategy. You can invest in individual stocks and bonds, mutual funds, exchange-traded funds (ETFs), or other investment vehicles. Research and consider factors like historical performance, fees, and the reputation of the investment managers.
Rebalance Regularly: Periodically review and rebalance your portfolio to maintain the desired asset allocation. Rebalancing involves selling or buying assets to bring your portfolio back in line with the target allocation. This ensures that your portfolio remains diversified and aligned with your goals.
Consider Tax Efficiency: Consider tax implications when building your portfolio. For example, holding tax-efficient investments like index funds in taxable accounts and tax-inefficient investments like bonds in tax-advantaged accounts (e.g., IRAs) can help minimize taxes.
Monitor and Adjust: Regularly monitor the performance of your investments and stay informed about market trends and economic conditions. Make adjustments to your portfolio as needed based on changes in your financial goals, risk tolerance, or market conditions.
Seek Professional Advice: If you are unsure about building a well-balanced portfolio, consider consulting with a financial advisor. They can provide personalized guidance, help you understand your risk profile, and recommend suitable investment strategies.
Remember, building a well-balanced portfolio is an ongoing process. It requires periodic review, adjustment, and staying informed about market developments to ensure your investments remain aligned with your goals and risk tolerance.
Motabhai ni Moti Vaato
The Nifty 50 experienced a brief surge above the 18,700 level but eventually settled with a modest 0.16% gain, closing at 18,563 for the week ending June 9. The Sensex also saw a marginal increase of 0.13%, ending at 62,625.
Among sectors, infrastructure and automobile stocks were the top gainers, with increases of 1.8% and 1.7% respectively. However, the IT sector faced a decline of 3.4%, while the FMCG sector saw a decrease of 1.2%, making them the top losers for the week.
The broader markets also showed positive momentum, with the Nifty Midcap 100 index gaining 0.5% and closing the week at 34,153. The Nifty Smallcap 100 index also performed well, recording a gain of 1.17%. Notably, the Nifty Midcap 100 index reached a new high of 34,534.70.
In terms of the Reserve Bank of India's monetary policy decision, there were mixed outcomes. On June 8, the central bank maintained the interest rates, keeping the repo rate unchanged at 6.5%. However, the inflation forecast was not significantly reduced, bringing both good and bad news.
Market participants are optimistic about a further moderation in consumer price inflation (CPI) for May, with most economists predicting a headline inflation rate of 4.34%, lower than the current level of 4.7%. The CPI data is scheduled to be released on June 12. The anticipated decrease in CPI inflation is attributed to base effects, a more manageable seasonal increase in food prices, and a sequential easing in energy costs. However, core inflation is expected to rise slightly due to ongoing pressures in output and services costs.
Economists polled by Reuters expect the U.S. Federal Reserve to keep interest rates unchanged at its meeting on June 13-14, marking a break in its tightening cycle that has been ongoing since March 2022. Fed Chair Jerome Powell indicated in May that the central bank may pause its rate hikes to assess the impact of previous tightening measures, totaling 500 basis points.
The recent surge in Americans filing for unemployment benefits has raised concerns about a slowdown in the labor market and increased recession risks, making a pause in key interest rates highly anticipated.
In addition to the CPI data, the wholesale price index (WPI) inflation for May is also set to be released on June 13. In April, the WPI experienced deflation for the first time since 2022, standing at a negative 0.92% primarily due to a decline in manufacturing, particularly in basic metals. The WPI is expected to contract further by 2.2% in May.
Other important data points to monitor include the Foreign Exchange Reserves for the week ending June 9 and deposit and bank loan growth numbers for the fortnight ending June 2, which will be published on June 16.
In addition to the Federal Reserve, the European Central Bank (ECB) and the Bank of Japan (BoJ) are also set to announce their interest rate decisions. The ECB's decision is scheduled for June 15, while the BoJ's decision will be on June 16.
The ECB is anticipated to raise its key interest rates by 25 basis points, reflecting concerns over persistent inflation in the region. On the other hand, the BoJ is expected to maintain its accommodative monetary policy stance while signaling a tolerance for higher inflation.
During the past week, foreign institutional investors purchased equity shares worth Rs 979 crore, while domestic investors bought shares worth Rs 1,938 crore. Sustaining this positive momentum in investor activity will be crucial to provide support to the market moving forward.
Word Wise
Exchange Traded Fund (ETF)
An ETF, or Exchange-Traded Fund, is a type of investment fund and exchange-traded product that trades on stock exchanges. It is designed to track the performance of a specific index, sector, commodity, or asset class. ETFs are similar to mutual funds, but they have some key differences.
ETFs are created by financial institutions that pool together assets from multiple investors and use the funds to purchase a diversified portfolio of stocks, bonds, or other assets. The ETF's shares are then listed on a stock exchange, allowing investors to buy or sell them throughout the trading day at market prices.
One of the primary advantages of ETFs is their ability to provide investors with diversification. By investing in an ETF, an investor gains exposure to a basket of securities that represent an index or a specific segment of the market. This diversification helps spread risk and can be a more cost-effective way to invest compared to buying individual stocks or bonds.
ETFs offer flexibility, as they can be bought or sold throughout the trading day at market prices. They also provide transparency, as the holdings of the ETF are disclosed daily, allowing investors to see what assets they own.
There are various types of ETFs, including equity ETFs, bond ETFs, commodity ETFs, sector ETFs, and international ETFs. Each type has its own investment objective and strategy.
It's important to note that investing in ETFs carries risks, including the potential for loss of principal. Before investing, it's advisable to thoroughly research the specific ETF, its underlying assets, and its investment strategy, and consider consulting with a financial advisor.
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