Equity markets plummeted down to 52 week lows in the month of June with both the benchmark indices, the Sensex and the Nifty 50, losing ~5% each for the month. The RBI MPC's decision to hike the repo rate by 50 bps and an overall change in their stance from accommodative to neutral set off the selling spree. Along with this, adverse global inflation data and harsh steps adopted by central bankers around the world, added to the misery. Concerns around the possibility of another global recession further spooked investors. Sectors like Auto, FMCG and Energy outperformed the market while on the other hand, Metals, Realty and Consumer Durables were the main underperformers. FIIs remained net sellers to the tune of USD 6bn, the steepest for the year so far.

                                                  

The Composite PMI was at 58.2 in June, little changed from May's 6-month peak of 58.3 while sustaining a marked rate of expansion. New orders expanded at a marked pace that was broadly similar to May. The service sector PMI reached 59.2 in June from 58.9 in May as India’s business activity was at the highest since 2011. Service providers signalled a stronger expansion than manufacturers, as growth among the former picked up to the quickest in over 11 years. Meantime, private sector job rose following a fractional fall in May, with slight increases in employment were recorded in both the manufacturing and service sectors.

                                                  

Headline CPI inflation in May dropped to 7.04% compared to 7.79% in April, led by a favourable base effect and moderation in sequential momentum (0.9% in May compared to 1.4% in April). Food inflation at 8% was the main contributor to headline inflation led by a sequential surge in vegetables (5.2%), meat and fish (2.5%), spices (2%), and oils and fats (1.5%). The high frequency prices for June indicate a softening in the prices of cereals, pulses, and edible oil (led by palm oil and mustard oil), tepid increase in vegetable prices and a surge in fruit prices. Core inflation moderated sharply to 6.2% from 7.4% in April as personal care category contracted -0.2% MoM reflecting the impact of moderation in gold and silver prices. May WPI came in at 15.9% YoY (1.4% increase MoM) with persistent pressures from food and fuel.

                                                  

After surging initially post the RBI MPC's decision to hike repo rate by 50 bps, bond yields came off towards the end of the month due to softening commodity prices and the MPC's decision to leave the CRR untouched. The benchmark 10 year G Sec ended the month up marginally by 2 bps to 7.44% from 7.42% in May. Corporate bond spreads, which had been contracting previously due very few issuances in the primary market, remained largely flat across various maturities.

                                             

The first week of July has seen markets remaining sideways overall with early gains being negated quickly. The outlook remains unfavourable generally for financial markets around the world as recessionary concerns continue to be overhangs on global markets. Participants would now look to the first quarter earnings for more specific cues on the markets.

 

Regards,

Investment team

Pramerica Life Insurance