Bulls continue to take charge of the market sentiment this Monday, taking Nifty past 17,300 in broadly a steady climb from the start of the day. A solid upmove in Reliance and banking shares, and steady car sales numbers for July supported the upmove. We are now higher for ten out of 12 sessions, as foreign investors look like they are returning, with commodity prices cooling off and less hawkish cues from the US Federal Reserve.
In the last twelve sessions alone, both Sensex and Nifty have risen by 9% each, taking all the sectoral indices higher. Investors now await the Reserve Bank of India's monetary policy outcome, due on August 5. In anticipation, foreign institutional investors have bought nearly $650 million worth of equities in July alone. This was the highest buy figure since October 2021. The fall in Dollar Index and better-than-expected monsoon has also helped sentiment.
Take a look at the factors that have powered the index to 1-1/2 month highs:
1. GST Mop up: Collections rose 28 per cent to Rs 1.49 lakh crore on an annual basis in July, on the back of signs of a steady economic recovery and measures taken to curb tax evasion. Tax collection in July this year is the second highest since the introduction of GST, in July 2017. Aditi Nayar, economist at ICRA said, ""The GST collections reported a healthy trend, rising for the second month in a row, with the 28% YoY rise a function of the economic recovery, better compliance as well as elevated inflation. With the headline GST collection in July 2022 exceeding our monthly average forecast of Rs. 1.45 trillion for this year, we foresee an upside of Rs. 1.15 trillion relative to the FY2023 BE for CGST collections."
2. PMI Reading: India’s manufacturing PMI (seasonally adjusted) accelerated in July, moving up to 56.4 from 53.9 in June, an eight-month high. The increase comes on the back of improving output and new orders, in contrast to exports, where new orders moderated. "We also think that some of the improvement in the outlook may be related to the fall in input prices, which declined to an 11-month low, while output prices fell to their lowest levels for four months. In terms of inventories, both raw materials and finished goods stocks are improving, which may partly be linked to the reduction in supply chain bottlenecks, evident in sectors such as automobiles," an economist at a foreign bank said.
3. Chance Of A Less Hawkish RBI: Slowing pace of rate hike by global central banks after recent fall in global commodity prices has improved market sentiment. Recent cool off in commodity prices could offer RBI some room to lower inflation forecasts modestly, as it tries not to compromise on growth. Still, analysts expect the RBI to deliver a unanimous 35 bps repo rate hike during this week’s policy review meeting, followed by two 25 bps rate increases – one in September and another in December. "We expect monetary normalisation to continue, but we also see signs that the RBI is turning more comfortable with a modest pace of rate hikes," said Barclays India in its latest report. The RBI Policy will be an important factor influencing the street this week, as the MPC convenes between 3-5 August.
4. FPI Returns to India: July saw foreign investors turn net positive for the first time since October last year. FIIs bought $651 million worth of shares, as against a net sell figure of $6.31 billion a month ago. The sharp decline in the Dollar index from above 109 to sub-106 levels helped improve the sentiment. There is expectation that the US Federal Reserve may be less aggressive going forward, while crude oil prices don't flare up.
5. Above Normal Rainfall: India has so far received 465.6 mm of rainfall this season, which is higher than the normal range, according to data published by the India Meteorological Department on July 29. While the eastern and north-eastern regions got 16% below normal rainfall, monsoon in the southern peninsula has been 28% above normal.
6. July Auto Sales: So far, the Auto sales trend indicates a healthy demand for vehicles, hinting at increased mobility and a rev up in business activity. Mahindra & Mahindra reported 33% rise in passenger vehicles, Ashok Leyland reported 58% surge in vehicle sales. Tata Motors announced a 51% jump in vehicle sales for July. Maruti Suzuki total sales jumped 10%. Meanwhile, Bajaj Auto reported a 4% decline in vehicle sales while Escorts sales dropped 18% year on year.
7. CMIE's Jobless Data: The rate of joblessness in July dropped to lowest level in six months, as experts believes that normal monsoon likely may have boosted agriculture activity in rural India. The overall unemployment rate eased to 6.80% in July, from 7.80% in June. That’s the lowest reading since 6.56% in January, as per a comparison posted by Centre for Monitoring Indian Economy (CMIE). The jobless rate in rural areas fell sharply to 6.14% in July, from 8.03% in the previous month, with monsoon 9% above normal as of July 29.
8. Global Factors: The personal consumption expenditures (PCE) price index in America jumped a per cent last month, its largest increase since September 2005, and follows a 0.6% rise in May. Another indicator, the U.S. employment cost index (ECI), which is a broad measure of labor costs, continued to rise last quarter (up 1.3%) after accelerating in the January-March period (up 1.4%). One view is that the US rebound is supported by this employment number, and the American economy might be able to avoid a recession.
The sentiment is hinting at an upbeat August on Dalal Street, but before a rebound takes root, some consolidation cannot be ruled out.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
