Weekly market review by Hemant Kanawala, Head - Equity, Kotak Mahindra Life Insurance Co. Ltd.

Strong foreign flows propel markets

Markets ended last week on a strong note with Nifty returning 1.9% and Midcap index returning 3.3%, supported by strong foreign institutional flows (~USD 1.9 bn) even as pressure of outflows from domestic institutions (~USD 435 Mn) continued. The outperformance of broader market is in sync with our expectation. We continue to hold the view that the markets would favor mid and small caps over large caps in the near term.

Among macro economic data, the industrial production growth for June was recorded at -17% vs -34% in May and -58% in April suggesting that normalization of production channels remains on track in June. In a sign of surge in pent-up demand witnessed post unlocking of the economy, consumer non-durables sector recorded a growth of 14% in June. The high frequency indicators for July suggest that commercial activity remained on track through the month of July as suggested by data on e-way bills, Fastag toll collections and rail freight. The number of eWay bills generated in July at 48.37mn was above the March levels of 40.66 mn.

On monsoon front, while the headline performance of monsoon remains encouraging suggesting a normal rainfall so far, region wise data shows that North-West India continues to face deficient monsoon with departure from Long Period Average at -22%. It is critical for monsoon in this region to gather pace to ensure healthy yield of crops like pulses and oilseeds.

Table 1: Performance of South West Monsoon

Source: IMD, Elara Securities Research

Media, metals and banks lead returns while infra and telecom lag

The sectoral performances capture the changing hues of the market with metals (4.0%) continuing its outperformance from last week well into the current week as well. Metals rally driven by a surge in global metal prices due to increasing metals demand from China and Eurozone could a sign of improving optimism over economic prospects. Also, the high beta thrust that metals provides usually earmarks a recovery in market sentiments in a recovery rally. 

Exhibit 1:  Media, metals and banks outperform; infra and telecom lag

Source: Bloomberg, Elara Securities Research

Exhibit 2: Foreign flows have been strong in Aug’20 and have supported the markets

Source: Bloomberg, Elara Securities Research