Here's a quick wrap-up of the highlights this week.
This week in stocks
Markets end higher for fourth straight week
The Nifty50 inched up nearly 1% this week, extending its gains to the fourth consecutive week. The rise has come on multiple levers:
- Declining cases, widening vaccination drive
- RBI’s status quo on interest rates
- Economic activity getting back on track as curbs ease
Further, foreign investment has been strong so far in June, with ₹15,500 crore flowing into Indian equity markets. While the upward journey has been intact so far, the strength of the momentum may have turned weak in the near term. At this point, the biggest perceived risk is from rising inflation. The US inflation numbers announced this week were above street estimates. In India, retail and wholesale inflation numbers will be announced on Monday and the expectations are that they will be higher than the previous reading. While central banks may believe that the inflation risk is transitory, they could be a sentiment spoiler, at least in the near term.
Sectoral trends
IT stocks jump on demand revival
The Nifty IT index rose by 4.5% this week and was a top gainer. As per a recent Naukri report, the Indian software industry has hired 14% more people in May 2021, as compared to the previous month. The demand comes on the back of accelerating digital transformation across various sectors due to the pandemic. Given their business models, the IT companies have not only increased their business scale but also reduced costs. The improvement in the business performance is reflected in the rise in the Nifty IT index, which has gained 122% since April 2020, when the country went under lockdown.
Key earnings
MRF’s profit skids, even as peers zip ahead
India’s largest manufacturer of automotive tyres reported a 51% year-on-year decline in its consolidated net profit for the March quarter. The drop in profit was due mainly due to the large deferred tax credit the company took in the corresponding quarter last year. Profit before tax grew by a healthy 47%. Meanwhile, revenue from operations rose 31% to ₹4,816 crore, in line with the growth seen among industry peers. Compared to MRF, peers like Apollo Tyres, JK Tyre and Ceat fared better in the last quarter, registering 3-4 fold growth in net profit. The Chennai-based company said that its business was impacted by regional lockdowns during the second wave. It is hopeful that the situation will normalise in the next couple of months. Shares of MRF declined 3% this week and have been in a consolidation phase since the beginning of this fiscal.
Key data release
Factory output surges in April, albeit on a low base
The index of industrial production (IIP) for April 2021 grew by 134% year-on-year, mainly due to a very low base of April last year. The index measures industrial activity across key sectors such manufacturing, mining and electricity generation. Majority of the industrial establishments had reported nil production in April 2020, leading to a historic low IIP figure.
Although not strictly comparable to the data from the last year, the high number hints at a revival in manufacturing activity. However, experts have cautioned against reading too much into it, as lockdowns triggered by the second wave led to a 13% contraction in IIP on a month-on-month basis. The exaggerated numbers are expected to persist until June, after which the numbers will more closely reflect the ground reality.
Major earnings next week
- Monday: Coal India, IDFC
- Tuesday: Jubilant FoodWorks, EasyTrip, Lemon Tree Hotels
- Wednesday: RITES
- Thursday: Natco Pharma
- Friday: HT Media
Key data releases next week
- Monday: WPI Inflation and CPI data (India)
- Tuesday: Retail sales (US)
- Wednesday: Crude oil inventories, Fed interest rate decision (US)
- Thursday: Initial jobless claims (US)
Hunger for K-Pop
This week, the popularity of Korean pop (K-Pop) led to the shutdown of dozens of McDonald’s outlets across Indonesia. Authorities had to close a total of 32 McDonald’s restaurants across the country fearing they may turn into Covid hotspots. The reason? The restaurants were flooded with orders for the McDonald’s BTS meal, which was recently launched in collaboration with popular K-Pop band Bangtan Boys (known as BTS). For many of us, this might be just another meal in McDonald’s, but for BTS fans, it is music for their souls—and stomachs.
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Disclosures and Disclaimer
Investment in securities markets is subject to market risks; please read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Past performance is not indicative of future results. Details provided in the above newsletter are for educational purposes and should not be construed as investment advice by RKSV group. Investors should consult their investment advisor before making any investment decision.
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