Investor Optimism Boosts Domestic Equity Market

Investor optimism prevailed in the domestic equity market on Monday, resulting in minor gains for the key benchmarks. The Nifty index managed to close just above the significant 19,350 level. However, the IT sector, despite preparing for the Q1 result season, experienced a decline in anticipation of soft earnings. On the other hand, the Nifty Metal and Nifty Oil & Gas indices bucked the trend and showed resilience. Nonetheless, other sectoral indices on the NSE ended the day in negative territory. Concerns among investors persisted regarding potential interest rate hikes in the US, despite predictions of a future decrease in US inflation figures. Let's delve deeper into the market's performance over the week.

Monday: Nifty Index Surpasses 19,400 Level

On Tuesday, domestic shares continued their upward trajectory, with the Nifty index surpassing the 19,400 level. This positive sentiment aligned with the broader Asian market, which witnessed overall growth. Traders remained hopeful for Chinese stimulus measures and anticipated a moderation in US inflation data. Within the Indian market, auto, FMCG, and pharma shares were in high demand. Investors eagerly awaited the upcoming quarterly earnings reports from IT companies, despite expectations of muted results. However, there was optimism that these companies might provide positive indications for long-term guidance. HCL Tech and TCS were set to announce their Q1 earnings on Wednesday, July 12.

Wednesday: Downturn in IT Sector Impacts Market

Wednesday saw a slight downturn in the domestic stock market following two days of gains. The Nifty index dipped below the 19,400 mark after briefly touching a high of 19,507.70 earlier in the day. Concerns over subdued earnings in the IT sector influenced market sentiment, although there was a glimmer of optimism due to potential decreases in US inflation. Consequently, IT shares experienced a decline, while PSU banks, pharma, and realty shares saw upward movement.

Thursday: Key Equity Indices Trim Gains

Despite reaching record highs, key equity indices trimmed their gains on Thursday. The Nifty managed to crawl above the 19,400 level, rebounding from the day's low of 19,385.80 during late trade. Volatility prevailed due to the expiry of weekly index options on the NSE. Notably, IT and realty shares witnessed a rally, while PSU banks and media shares experienced a decline. Globally, shares soared as US consumer inflation data came in lower than expected, raising expectations of a potential delay in interest rate hikes by the US Federal Reserve. This development was viewed as a positive indicator for the global economy.

Friday: Nifty Index Closes Around 19,550 Points

The Nifty index closed around 19,550 points, registering a gain of 502 points, while the Sensex showed positive momentum. The Nifty IT index performed exceptionally well, closing with a remarkable increase of 4.45% at 30,945.5 points today. Over the past month, the IT index has surged by an impressive 7.00%. Among the constituents of the index, Mphasis Ltd saw a notable gain of 7.67%, while L&T Technology Services Ltd experienced a significant jump of 5.4%. Leading the gains on the Nifty were prominent IT companies such as TCS, Infosys, Tech Mahindra, LTIMindtree, and HCL Technologies. However, there were a few losers as well, including HDFC Life, M&M, Power Grid Corporation, Titan Company, and Dr Reddy's Laboratories.

Market Performance and Economic Indicators

In broader market indices, both the BSE midcap and smallcap indices added 1 percent each. The overall sentiment remained positive as all sectoral indices closed in the green, with the Information Technology index exhibiting a substantial increase of over 4 percent, while the metal and realty indices showed growth of 1 percent each. Let's also take a look at some notable economic indicators.

Economic Indicators

India's foreign exchange reserves witnessed a notable increase of USD 1.9 billion, bringing the overall level to USD 595.1 billion as of June 30, according to RBI data. Additionally, a UNESCAP report ranked India as the top-performing nation in terms of trade facilitation among all countries in the South Asian region. Furthermore, the Confederation of Indian Industry's Business Confidence Index improved to 66.1 in Q1 FY24, displaying positive momentum in indicators such as GST collection and air & rail passenger traffic. Government data released on Wednesday revealed that India's retail inflation rebounded in June, ending a four-month decline, with a growth of 4.81%. This increase was primarily driven by surging food prices. Comparatively, CPI inflation stood at 4.31% in May (revised upward from 4.25%) and 7% in June 2022. Another positive sign emerged from official data indicating that India's industrial production rose to 5.2% in May, up from 4.5% in April 2023. The growth was primarily propelled by strong performance in the manufacturing and mining sectors. In May 2022, the factory output growth, as measured by the Index of Industrial Production (IIP), stood at an impressive 19.7%.

Trade Deficit and Commodities

India's trade deficit witnessed a significant reduction in June, with a notable decrease to $20.13 billion. The month's merchandise exports amounted to $32.97 billion, while imports stood at $53.10 billion. Moving on to commodities, gold prices experienced a notable weekly gain, marking their largest increase since April. The precious metal rallied close to a one-month high as market expectations of further interest rate hikes in the United States diminished, leading to a decline in the value of the dollar to its lowest level in over a year. Oil prices saw an upward trend on Friday, supported by tighter supply concerns related to issues in Libya and Nigeria. Additionally, the easing of U.S. inflation brought hope to the market that it could lead to a cessation of interest rate hikes in the world's largest economy.

Global Markets

Asia-Pacific markets experienced a positive trajectory on Friday following the release of softer-than-expected inflation data from the United States. This outcome raised optimism among investors, as it suggested that inflation could decrease without negatively impacting the labor market. Australia's S&P/ASX 200 index recorded a gain of 0.78%, while Japan's Nikkei 225 index experienced a slight decline. South Korea's Kospi index rose by 1.43%, leading the gains in the region. In mainland China, the Shanghai Composite index registered a marginal increase. In the US stock market, the NASDAQ rose by over 1% for the second consecutive day, driven by data showing that the annual increase in US producer inflation was the smallest in nearly three years.

Conclusion

In conclusion, investor optimism played a crucial role in boosting the domestic equity market. While the IT sector faced some challenges, other sectors showcased resilience. The market's ups and downs, coupled with the performance of key sectors, continue to shape India's economic landscape. The positive economic indicators and the reduction in the trade deficit further contribute to the overall sentiment. Moving forward, market participants will closely monitor global developments and economic data to make informed investment decisions.