Stock market watch: what to expect from the week ending May 28, 2021
After months of rallying, the metal’s shares took a beating last week and the trigger was China’s comment that it will step up its management of commodity supply and demand to curb any “unreasonable increases. prices”. “Metals have seen a phase of the correction and are expected to remain weak in the coming weeks. Since the market as a whole is still bullish, this segment will see a consolidation and not a major fall, ”said Sacchidanand Uttekar, assistant vice president of Trade Bulls Securities.
As the end of the settlement cycle approaches, the option to recognize profits
The rise in world commodity prices has started to be reflected in domestic inflation. For example, wholesale price inflation jumped to 10.49% in April from 7.39% in March. It is expected to rise further before descending. Inflation is also becoming an issue in the United States, and recent U.S. Federal Reserve minutes hinted at a possibility of cutback talks at upcoming meetings. However, market players are not very worried. “Soaring inflation in the United States and the resulting rise in yields are cause for concern. However, the global market will remain relatively stable now and big moves will only occur if the US yield 10 exceeds 2%, ”says VK Vijayakumar, chief investment strategist, Geojit Financial Services.
Next week is also an expiration week and therefore be prepared for increased intra-day volatility. “We could have a fantastic expiration next Thursday. However, Nifty’s chances of going beyond 15,600 are less and as a result, short-term traders may start to register profits around this level, ”Uttekar says.
(By Narendra Nathan)
New investment is drying up as the pandemic rages on: While much has been said about the economic rebound in the last two quarters of 2020-2021, which has sparked some optimism, the investment picture has remained grim. This was expected given that the government seemed to be the main driver here and the contribution of the private sector was limited. First, there was excess production capacity and second, there was uncertainty about aspects of financing. There was an extended moratorium by the banks for six months which came to the rear of the system on the verge of approaching normal after the NPA conundrum. Therefore, there was some reluctance in lending, which can be seen from the limited success of LTRO operations where most of the borrowed money was repaid by the banks when the RBI authorized it.
CMIE investment data points to this problem. The data provided on the new investment projects announced, which is a very good indicator of investment intentions, shows that the aggregate stood at Rs 5.18 lakh crore in 2020-21, the lowest since 2004- 05 when it was Rs 5.63 lakh crore. The downward movement in 2020-2021 is certainly due to exceptional conditions, but for a recovery to take place, demand will need to increase. The capacity utilization rate fell sharply in June 2020 to 47.3% and has since risen to 63.3% and 66.6% respectively in September and December 2020.
The decrease in announced investments is also indicative of the fact that the increase in borrowing observed last year, which was moderate, was not intended for investment and could have been intended more for working capital as well as for refinancing purposes. Investment is worrying because the rate of gross fixed capital formation has fallen steadily from 34.3% in 2011-12 to 28.8% in 2019-20 and is expected to decline further to 26.7% in 2020 -2021.
The investment has therefore certainly been a victim of repeated lockdowns. If one hoped that there would be a recovery this year, the second wave of the pandemic seems to have capitalized on such hopes.
Since many manufacturing companies are not fully functioning, as only essential goods can be consumed, there is a likelihood that the recovery will slow down. Sectors such as metals, energy, information technology and chemicals (including) drugs and pharmaceuticals will continue to experience momentum. However, for investment to be generalized and not localized, aggregate consumption must improve.
(Investments in 2020-2021: CARE ratings)
Steel prices are stable for the moment, but the fear persists: Regional prices are well above $ 1,050 / tonne and several players have announced increases starting in June / July-2021. The domestic price of steel (traders side) is also stable at Rs 66,750 / tonne – still 14% less than the realization of exports and 20% less than the landed price of imports from South Korea.
China: a concern Recent developments in China aimed at curbing the surge in steel / iron ore prices have caused the ferrous metals market to float. A few market players expect the government to ease production cuts in Tangshan and Handan to lower domestic steel prices, which fell 8-10 percent last week. Short-term volatility of stock prices expected.
The domestic price of steel is lower than the realization of exports
Outlook: Record world steel prices are expected to take margins to an all-time high in the first quarter of 2021-2022. National steel players have a clear advantage because: i) there is no threat of imports; (ii) greater export realization is likely to avoid short-term domestic demand problems; and (iii) the lowest achievement in the world is likely to isolate price moderation, if any. That said, recent efforts in China to contain steel prices have dampened sentiment and could lead to short-term stock price volatility.
While we maintain the positive outlook for ferrous metals due to China’s broader goal of limiting steel production to reduce carbon emissions, we will be keeping an eye on future developments. Maintain Buy each of our top picks, namely Tata Steel and SAIL.
(Steel price: Edelweiss)