Market Pulse | 7th June, 2024

ECONOMIC HIGHLIGHTS

INDIA

?RBI MPC keeps repo rate unchanged at 6.5%; 7.2% GDP growth seen in FY25: ?The Reserve Bank of India (RBI) announced the second bi-monthly monetary policy of the financial year 2024-25. The RBI Governor said that the Monetary Policy Committee (MPC) decided to keep the benchmark repo rate unchanged at 6.5 per cent for the eighth consecutive time by a 4:2 majority. It also decided to continue with its stance of ‘withdrawal of accommodation’. RBI raised its GDP growth forecast for FY25 to 7.2 per cent from 7 per cent earlier. The central bank retained the FY25 inflation forecast at 4.5 per cent.?

?India's May services growth cools to five-month low, PMI shows: Growth in India's services activity growth slowed to a five-month low in May as robust domestic demand weakened, according to a survey, which also showed exports growing at a record pace and job creation rising to a 21-month high. The final HSBC India Services purchasing managers' index, compiled by S&P Global, fell to 60.2 last month from April's 60.8, confounding a preliminary reading for a rise to 61.4. However, it remained above the 50 mark separating growth from contraction for the 34th straight month. India's service activity rose at a slightly softer pace in May, with domestic new orders easing slightly, but remaining robust, implying strong demand conditions and successful advertising Even though the new business sub-index - a key gauge for demand - remained robust in May, it grew at the slowest pace this year due to fierce competition and heat waves across the country hampering livelihood.

?India to spend up to $385 billion to meet renewable energy target: India will have to invest as much as $385 billion to meet its target of 500 gigawatts (GW) of renewable energy by 2030, but coal will remain a key source of electricity generation for the next decade. India, a major greenhouse gas emitter, has said it aims to ramp up non-fossil fuel capacity set by 50 GW each year to help meet its 500 GW target.

?Govt bonds still a 'buy' for foreign investors despite PM Modi's narrow win: India's government bonds will continue to attract foreign flows even as a narrower-than-expected victory margin for Prime Minister Narendra Modi-led alliance could prompt a shift in policy. Foreign investors have piled on bonds this year and remained on the buying side on Tuesday, despite the unexpected election outcome hitting stocks, bonds and the rupee on concerns over populist spending and a stalling of reforms.

GLOBAL HIGHLIGHTS?

?Investors queued up for US high-yield bond funds as rate cut hopes grow:? U.S. high-yield bond funds enjoyed the biggest inflows of the year in May, driven by the allure of higher yields, potential for price appreciation amid anticipated?Federal Reserve rate cuts, and diminishing corporate credit risks. U.S. high-yield bond funds attracted $5 billion in inflows in May, the highest since December. From January to May this year, the total inflows reached $6.1 billion, marking the highest in three years. S&P Global Ratings expects the U.S. trailing 12-month speculative-grade corporate default rate to fall to 4.5% by March 2025, from 4.9% in April 2024.

?EM portfolios see foreign inflows for the seventh straight month in May: Emerging markets attracted foreign portfolio inflows for a seventh straight month in May thanks to investors pouring money into bonds, but persistently high U.S. interest rates are dimming the outlook, a report from a banking trade group showed. Net Non-Resident portfolio flows into emerging markets came in at $5.5 billion in May compared to a revised $8.2 billion inflow in April. The gains came as inflows into fixed income, at $11.5 billion, more than offset outflows of $6.0 billion from stocks -with both China and ex-China suffering.

?UK construction sector records fastest growth in two years, PMI shows: Britain's construction sector recorded its biggest rise in activity in two years last month, including the first rise in house-building since just after former Prime Minister Liz Truss' mini-budget. The S&P Global UK Construction Purchasing Managers' Index rose to 54.7 in May from 53.0 in April, beating the median forecast for a fall to 52.5, reaching its highest since May 2022. The upturn follows weak official data in the final quarter of 2023 and the first quarter of this year. Output fell 0.9% in each period, the largest decline since mid-2021.

?Japan's service activity extends gains, price pressures persist, PMI shows: Japan's service activity extended robust gains in May, amid persistent inflationary pressures that have boosted expectations for another interest rate hike this year. The final au Jibun Bank Service purchasing managers' index (PMI) dipped to 53.8 last month from 54.3 in April. The index has remained above the 50-mark that separates contraction from expansion since September 2022 and was better than the flash reading of 53.6. The Japanese service sector's strong upturn was sustained in May, with growth rates for activity and new work easing only slightly. Although the rate of increase slowed in May, new business kept growing, fuelled partly by tourism and the weak yen, the survey showed. The volume of new work received from overseas rose the fastest since the new export subindex was launched in September 2014, thanks to the yen's depreciation and demand from other Asian economies.

MARKET HIGHLIGHTS

?IT stocks, GDP boost drive Indian shares' post-election recovery: Indian shares continued their post-election recovery on Friday, boosted by a jump in IT stocks and as the country's central bank raised its economic growth expectations while keeping interest rates unchanged, as expected. The Reserve Bank of India (RBI)?kept?its key interest rate unchanged and raised its real gross domestic product (GDP) growth forecast for the current financial year to 7.2% from 7%. Heavyweight IT stocks?gained 3.4% after major central banks?kick-started?their rate-easing cycle, adding to expectations that the Federal Reserve could follow suit.

?PSU stocks stage a strong comeback after poll outcome-led selloff, BSE PSU index up 6%: After taking a beating in the past two sessions due to post-election volatility, shares of public sector undertaking (PSU) companies staged a strong comeback on June 6, surging 4-14 percent in trade. Shares of PSU companies, seen as the major beneficiaries of policy continuity with the return of the BJP to power, saw an intense selloff in the past two sessions after the Modi-led party failed to achieve a majority on its own. Nonetheless, with the BJP set to return to power, albeit with the help of its coalition allies, several brokerages believe its policy measures, including its capex plans are unlikely to be halted.?

?Equity mutual funds meltdown: The biggest losers on the day of Lok Sabha election results: The Indian stock market crashed on June 4 with the benchmark indices experiencing their sharpest single-day fall since March 2020, as investors turned jittery after the BJP failed to secure a majority on its own in the Lok Sabha election 2024. The Sensex closed 5.7 percent down, while the Nifty plunged 5.9 percent. Mid and small-cap indices, too, tanked. The Nifty midcap 150 and Nifty smallcap 250 ended 7.1 percent and 7.5 percent down. Equity mutual funds followed suit.

?India VIX jumps to two-year high as Nifty falls most since Covid-19: India VIX, the volatility index, of the Indian stock market jumped up to 50% to hit a day's high of 31.71. The gains were seen as counting trends indicated that Prime Minister Narendra Modi's Bharatiya Janata Party might be reliant on alliance partners to return to power for a third time. India VIX had declined 15% and settled at 20.94 on June 3 after the exit polls predicted the BJP-led National Democratic Alliance government would return to power with a thumping majority.?

?Garden Reach Shipbuilders surges 6% on lowest bid of Rs 500 cr for DRDO contract: Shares of Garden Reach Shipbuilders & Engineers (GRSE) soared up to 6 percent on June 7 after the company emerged as the lowest bidder for a Defence Research and Development Organisation (DRDO) contract. The stock rebounded strongly?following its over 17 percent?correction in two days post the election results, attributed to the weaker-than-expected mandate for Bharatiya Janta Party-led government. However, it has since?gained?around 16?percent in the next two sessions, recovering most of its losses.

?RVNL shares gain on back-to-back order wins; extend 2024 gains beyond 105%: Shares of Rail Vikas Nigam Ltd. (RVNL) gained up to 3% in Friday's trading session after the state-run company announced that it has won a??495 crore order from National Thermal Power Corporation (NTPC). The multibagger railway public sector undertaking (PSU) stock rose 3.15% to hit a day's high of??382 as against its previous closing of??370.3 on the NSE. The NTPC order pertains to carrying out specific tasks related to construction and installation work for the barrage complex and part of the head race tunnel (HRT) at the Rammam Hydro Electric Project in West Bengal. The order will be executed in 66 months.

?FII sell-off in auto, FMCG, oil & gas, power; shift to buying in banking, construction: Foreign investors sold significantly in May, but their selling slowed in the latter half of the month. Initially, they sold around Rs 25,000 crore in local equities, but in the second half, it dropped to just Rs 306 crore. Their selling spree in auto, fast and moving consumer goods, oil & gas and power sectors continued while they have turned buyers in the financial, construction and telecom sectors after selling aggressively in the first half of May. In the auto sector, FIIs sold Rs 3,323 crore in the second half of May, up from Rs 706 crore in the first half. In FMCG, they sold Rs 3,015 crore, compared to Rs 1,158 crore earlier. In power, they sold Rs 2,250 crore from Rs 792 crore initially. Switching gears, they bought Rs 1,104 crore in financial services after selling over Rs 9,600 crore initially. In construction, they bought Rs 1,104 crore after selling over Rs 3,800 crore initially. In telecom, they bought Rs 1,378 crore after selling Rs 272 crore earlier.

SECTOR HIGHLIGHTS

?Auto stocks were on the rise this week gaining 6.83%, with companies like M&M, Bharatforge, and TATAMotors being the top performers.

?IT stocks, which saw a decline of nearly 4.3% last week, have rebounded and are now the top-performing sector, gaining 8.6% this week. Wipro and Infosys were the helpers to the gains in the 50-stock index.

?Stocks of the Banking & Financial Services sectors were some of the worst performing despite having a positive week due to the outcome of the elections showing a slim margin win for the BJP-led NDA government.

?M&M shares hit all-time high—Here's what is keeping the investors keen: Mumbai-based automobile manufacturer Mahindra and Mahindra shares on Friday, June 7 rose to life high on Dalal Street, a day after the firm informed the bourses about the approval of the merger of three of its subsidiaries - Mahindra Heavy Engines Ltd (MHEL), Mahindra Two Wheelers Ltd (MTWL) and Triggo.com?Limited?with the company.?The auto stock rose as much as 3.5 per cent to its record high of Rs 2,794.95 on NSE in afternoon deals. Apart from this Mahindra & Mahindra posted a 4 per cent increase in consolidated profit after tax (PAT) to Rs 2,754 crore for the March quarter, driven by a strong performance of its automotive and farm sector segments. M&M's revenue increased to Rs 35,452 crore in the fourth quarter, registering a growth of 9 per cent, compared to Rs 32,456 crore in the corresponding period a year ago.

BUSINESS-INDUSTRY UPDATES

?India's Bajaj Housing Finance approves IPO to raise 40 bln rupees: India's Bajaj Housing Finance approved to file for an initial public offering (IPO) with a fresh issue of shares worth 40 billion rupees ($479.2 million). The firm, a unit of non-banking finance company (NBFC) Bajaj Finance?said the IPO would include a sale of shares by existing shareholders. In September 2022, the Reserve Bank of India (RBI) had released a list of upper-layer NBFCs, or those entities with 500 billion rupees of assets under management. According to RBI norms, Bajaj Housing Finance, which was a part of the list, was required to be listed on stock exchanges by September 2025. The IPO would be subject to market conditions, approvals and regulatory clearances, the company added.

?Lenskart raises $200 million in secondary round at $5 billion valuation: IPO-bound Lenskart, the largest eyewear retailer in Asia, has raised $200 million in secondary investment from Singapore’s state-owned investment firm Temasek and US financial services major Fidelity, the company said in a statement. As value in startup companies grows, secondary sales are a way to repay early investors. The Peyush Bansal-led company is likely to be valued at $5 billion in this round. The firm was last valued at $4.5 billion during $100 million funding in June last year. Over the last 18 months, Lenskart has attracted close to $1 billion in capital, making it one of the largest growth-stage financings globally. This investment also marks Temasek doubling down on its existing investment in Lenskart, while Fidelity Management & Research Company (FMR) joins the cap table.

?Vedanta Demerger Receives Nod From Key Creditors, Including SBI: Vedanta Ltd. has received approval from most of its creditors to demerge its businesses, marking an important step in the company’s plan to split into six independent listed companies. The demerger will create independent companies housing the aluminium, oil & gas, power, steel and ferrous materials, and base metals businesses, while the existing zinc and new incubated businesses will remain under Vedanta. The move comes at a time when Vedanta has made progress in its deleveraging. As of March 31, the company's net debt was Rs 56,388 crore, a reduction of Rs 6,155 crore from December 2023. This was driven by strong cash flows from operations and working capital release.

?Air India-Vistara merger: NCLT approval paves way for India's largest international carrier backed by Tata: The National Company Law Tribunal (NCLT) has given the green light for the merger of?Air India and Vistara, paving the way for the formation of India's largest International carrier. Following the merger, announced in November 2022, Singapore Airlines will hold a 25.1 percent stake in Air India.