Look Ahead for Inflation, IIP & Current Account Deficit Data

After a quiet month in June, attention of participants in the domestic equities market will be drawn to macroeconomic data such as inflation, IIP and current account deficit in July. The rise in crude prices towards the $80 threshold, as well as any weakness in the rupee, could be headwinds for the market, but expectation of a normal monsoon, uninterrupted FII and domestic participation, along with positive global cues, will be tailwinds.

Opening up of the economy may influence the auto and consumption sectors positively though the worry on the NPA problems may act as a drag on the banking sector, while low beta sectors like IT and pharma may act as potential safeguards in a client’s portfolio.

Let’s check last week market movements:

The BSE Sensex was in the range bound phase and ended up with a fall of 440.37 points (0.83%) to end at 52,484.67, while Nifty50 fell by 138.15 points (0.87%) to close at 15,722.20 mainly due to rising cases of the Delta Plus variant of Covid-19 and fear of one more lockdown.

The factors which will impact the equity market in coming week:

1. As the economy opens gradually, with logistic challenges being mitigated, we may see inflation figures mildly lower in the coming quarter, and the market had already factored in 5.5 per cent inflation for the coming two quarters.
2. Rupee tended to be low in the last 2 months. Going by history, when there is a fall in the rupee, the IT index gains, and in last 3 months, the IT index has increased by approximately 300 points. It may also be an encouraging factor for further upside in IT index.
3. Fall in Covid cases and rise in vaccination rate will lead to increase in the fresh demand for goods and services, but at the same time fresh round of restrictions to tackle the surge of Delta variant may disrupt the market and slow down the economic recovery. 
4. Increase in commodity prices will also create a positive Capex in specific sector. The PLI scheme is expected to be capex supportive, and it will give a great boost to steel industry. So, it is expected that steel sector will have an upward swing.
5. The finance minister has announced additional Rs 1.5 lakh crore ECLG for MSMEs and Rs 1.1 lakh crore for Covid affected sectors. The sectors which are going to benefit are microfinance institutions, tourism and hospitality, fertilisers, electronics, IT service and healthcare.
6. Corporate earnings for the first quarter of financial year 2021 are predicted to be better, as companies continue to benefit from low costs and high margins. Stocks in IT and pharma will continue to do strongly. Infra, capital goods, engineering, and electricity companies will also benefit from the government's infrastructure focus.
7. Last week, BSE small cap moved upward 2.25 per cent mainly due to low interest rate and bull run. Vodafone has reported a loss of Rs 7,000 crore, which is a big concern for the stock, and also a liquidity crunch, which will further create a negative sentiment in telecom sector.
8. Due to ease in lockdown, hard hit sectors like hospitality, real estate, aviation, tourism may see some positive movement.

The author is Assistant Director ITM B-School

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.