Good Morning Toasters!

Hi friends!! After the roller coaster of last week, let’s hope for some resemblance of sanity during the coming days? Volumes on opening day were down (in comparison) with the markets opening in the green but unable to maintain the momentum by days close.

The FM made an appearance over the weekend, doling out multiple fiscal measures like tax cuts and subsidies with an aim to curb inflation. With fiscal + monetary action in tandem, the GoI and RBI are now jointly trying to manage growing prices, while ensuring growth doesn’t get affected. Nice!

We return with our Technical Setup section, covering ICICI Bank, which is trading in a descending triangle pattern, forming a support band, while showing signs of reversal & trend change.

And finally, we’ve started a rollout of our newest product, Trade:able, that aims to democratise trading, via a unique and fun learning experience. There are a bunch of amazing rewards and prizes to win. Click here to know more.

Market Watch

Nifty 50: 16,214.70 | -51.45 (0.32%)
FII Net Sold: INR 1,951.17 crore

Sensex: 54,288.61 | -37.78 (-0.07%)
DII Net Bought: INR 1,445.39 crore

Technical Setup

ICICI Bank’s time to finally show some recovery?🤑

• Analysing ICICI Bank on a weekly time frame indicates that the stock is trading in a descending triangle pattern (see image below) Prices had made a support band (642-680) around its previous swing low of 642
• The formation of a bullish engulfing and a higher low is a sign of reversal and a trend change (to uptrend)

Nice! Tell me more? Any moving confirmations?

• Looking at the daily chart, the stock has been trading in a tight range (ascending triangle pattern), a breakout above the resistance band might push the prices higher
• Prices will tend to break the 50-day SMA post reversal which will help the prices make higher highs. (strong uptrend)

That’s Great! How do I enter / exit such a setup?

• Making a long position post-breakout above the resistance band would be the ideal choice in this case
• A stop-loss can be placed just below the lower end of the resistance band (just in case prices give a false breakout)
• RR ratio can be set as per your risk appetite, hence your target can be calculated accordingly

Interesting! Final thoughts?

• On a weekly time frame, prices forming a bullish engulfing candle close to a support level and making higher lows shows positivity
• On a daily time frame, prices trading in a tight range and close to breakout levels add strength

Keep a track?

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Around the World 🌎

• Insiders in the crypto market – Several anonymous crypto users have apparently been engaging in insider trading and are buying up tokens right before they are listed making huge profits after selling shortly after. The most recent case was with the coin Gnosis where the accused netted $140,000 or a 40% return. The crypto market is already grappling with shocks after the most popular stablecoin was depegged from the dollar
• India’s win is China’s loss – Apple is looking to move its manufacturing from out of China to other countries like India and Vietnam after their strict covid policies are hurting supply chains and overall growth. This move could influence the thinking of other major corps as well and they may also look to reduce dependence on China for manufacturing. Currently, China manufactures 90% of Apple’s products
• Broadcom x VMware – Broadcom Inc. (valued at $222 billion) is looking to acquire VMware (valued at $40 billion) in a cash and stock deal as they want to build up their presence in the corporate software market. VMware has a strong position in the market for “hybrid” cloud. Dell Technologies recently spun off its 81% stake in VMware

Economy News

Finance Minister Sitharaman takes matters into her own hands; what’s and what do you need to know?

A slew of announcements targeting inflation & consumption from GoI

• In an effort to offer some reprieve on inflation (RMB?), the government deployed counter-cyclical fiscal measures to shield consumers from global price volatility –
  • INR 8/litre and INR 6/litre tax cuts on gasoline and diesel, respectively, taking it back to pre-pandemic levels (thank you, finally)
  • INR 200 subsidy on cooking as, which will likely benefit ~90 Mn households
  • Cuts in import duties on raw materials and intermediaries of plastics, iron, coal, cement & steel
• The fuel excise cuts and LPG subsidy is expected to cost the government INR 850 Bn and INR 61 Bn, and combined with the other measures amounts to ~1% of the GDP (sizable!!)
• In total, the fuel cuts & LPG subsidy should shave off 45 Bps from headline Core Price Inflation (CPI) from the expected June numbers, which should positively impact consumption
• The GFD / GDP ratio (loosely translates to debt/revenue, providing an indication of how easily the country will be able to repay its debt) with all the subsidies & cuts (listed above) is likely going to print at 6.9% for the year (more on this below)

Interesting! So GoI + RBI are now intervening to manage the situation? Tell me more?

• There is now coordination between fiscal (government-induced cuts & subsidies) and monetary policy (rate hikes et al.), which should have a sobering effect on inflation
• The RBI Governor also granted an interview in the aftermath of the FM’s announcement, indicating a plan to raise rates in the ‘at least’ the next meeting, to the tune of 25-50 Bps, with plans to cumulatively perform a 100 – 125 Bps hike in FY23
• A rough target of touching pre-Covid levels of liquidity is guiding the RBI, while ensuring that the central bank does not get ‘trapped’ and there is enough credit in the economy to stimulate growth
• On the currency front, with the Rupee now trading ~77.5 on the dollar, the Governor hinted at allowing the Rupee to find its levels, with the central bank only looking to prevent excessive volatility and runaway depreciation (which keeps increasing indefinitely)

Okay! Final thoughts? The market reaction, expectations going forward, sectors to look at?

• Sectorally, Automobiles (CVs) and Cement can be downstream beneficiaries of a cut in taxation as mobility becomes cheaper, with rough calculations pointing to 2.0-2.5% EBITDA / Ton savings due to reduced fuel costs, for cement companies
• Banking stocks can be viewed as beneficiaries (we believe) as action around fiscal measures relieves some of the pressure from the RBI, while maintaining GDP / credit growth in the system
• Inflation print is expected to be >6% for the coming two quarters, and yet with the GoI now coordinating the RBI to merge fiscal + monetary efforts, inflation will likely be tamed by the end of the year (we believe)
• The RBI Governor has hinted at prudence in raising rates beyond requirement, with pre-Covid liquidity level the target, front-loading (only monetary policy action) may continue for some time, beyond which rate hikes may not happen in regularity

What else caught our eye? 👀

Duty hikes may affect the long term

• Export duty on iron and steel intermediates could negatively impact capacity expansion projects under the Production Linked Incentives (PLI) scheme
• Export duty has been levied on 11 iron and steel intermediates while import duty has been trimmed on three key raw materials for steel production
• Exports of iron ore will see a duty of 50% while some steel intermediaries will be taxed up to 15% which could impact the entire supply chain in the long run

India’s growth story sees yet another hurdle

• India’s GDP growth for the last quarter (Q4FY22) is likely to be only 3.5% down from 5.4% in the previous quarter with GVA expected to rise even slower
• Higher commodity prices, decline in wheat yields and other hiccups after the third wave as well as the high base from last year are said to be major reasons
• Retail inflation is expected to average 6.3% in 2022-23 though the recent cut in petroleum taxes could provide a temporary cushion to households

Results Preview (Nifty 200)

Tuesday, 24th May: Adani Ports, Bank of India, Grasim Industries, IPCA Labs, Metropolis Healthcare

Wednesday, 25th May: Apollo Hospital, Bata India, BPCL, Coal India, Fortis Healthcare, National Aluminium, PFC, Torrent Pharma, Whirlpool India, Interglobe Aviation, Max Healthcare

Educational Topic of the day

Stochastic oscillator

A stochastic oscillator is an indicator that compares a specific closing price of an asset to a range of its prices over time – showing momentum and trend strength. It uses a scale of 0 to 100. A reading below 20 generally represents an oversold market and a reading above 80 an overbought market.

Edited by Raunak Karwa

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com