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Poonam Tandon
Chief Investment Officer

Market Matters July 2021

July saw the Indian equity indices moving in a volatile range as improving macro-economic data, reduction in daily COVID-19 cases and rising vaccination coverage were offset by relatively weak global cues primarily due to weakness in Chinese benchmark equity indices. Rising inflation concerns led to hardening of yields in the domestic fixed income markets.  

Globally, weakness in major Chinese equity indices on the back of adverse regulatory actions offset strong corporate earnings announcements in the US. This combined with improved macro-economic data led the US equity market higher offsetting concerns related to inflation and spread of delta variant of COVID-19. US 10-Year treasury yields declined where the US Dollar saw rangebound movement. Crude oil prices were volatile on the back of prospects of a supply boost due to OPEC+ announcement. Domestically, rainfall activity picked up with prospects of normal monsoons across the country during August. Government approved a PLI scheme for the specialty steel sector for attracting investments and help raise the country’s specialty steel output. Retail inflation eased marginally whereas industrial activity rose. GST revenues clawed back above the Rs 1 Lakh Cr mark on the back of recovery in consumption. Manufacturing PMI numbers also rebounded sharply into expansion territory in July.    

Post COVID-19 outbreak, global central banks and governments had launched co-ordinated policy efforts to curb the fallout of the pandemic spread on their respective economies. This combined with rising vaccination coverage had improved global economic outlook which contributed to the market recovery. Going ahead, rotation theme within sectors and style could lead to the emergence of new sectors as market leaders with the potential for value-oriented stocks to outperform. On the fixed income side, RBI MPC has continued with its accommodative stance with plans to keep it as long as necessary to revive and sustain growth and mitigate the impact of COVID-19 on the economy. It has also continued support through measures such as  OMOs and G-SAP. 

Going ahead, factors such as the course of key global central bank monetary policy and any signs of normalisation of the same would be eyed. Ongoing corporate earnings season, monsoon and sowing progress, impact of delta variant on economic growth, vaccination drive, trajectory of reopening of economies and commodity price movement would also remain in focus. Additional risk factors include flare up in the latest geo political tensions and trade tariffs.

Current quarter earnings performance would provide more clarity on sustenance of the earnings revival. Optically high headline valuations could be reflective of an uptick in corporate earnings performance. Considering the steep rise in market valuations, there could be intermittent market corrections. Market volatility could rise in the short term but it can provide opportunities to accumulate quality stocks. Hardening of bond yields was largely due to rising inflation concerns as crude oil prices continued to surge. However, RBI’s continued accommodative monetary policy stance, normal monsoon forecasts, pick up in sowing activity and rising vaccination coverage could offset those market concerns keeping bond yields ranged.



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