In this weekly review, we analyze the impact of GDP data on Sensex, the possible RBI repo rate in the coming week, and the impact of the semiconductor shortage on the Indian automobile industry.
Contents:
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The Indian Economy Grew 8.7% in 2021-22 The Indian economy grew 8.7% in Fiscal year 2021-22 with the gross domestic product GDP expanding 4.1% in the 1st quarter versus last year. The GDP growth for FY 2021-22 takes the economy above its pre-pandemic level and is an improvement after contracting 6.6% in FY 2020-21.
Incidentally, the economic growth during the entirety of FY 2021-22 has gradually declined with each quarter. In the first quarter of FY 2021-22, economic growth was a stupendous 20.1%, which however was mainly due to the low base effect. In the second quarter it was 8.4%, while it was 5.4% in the third quarter. Now for the fourth quarter, it has slid down to 4.1%. And for the whole fiscal year 2021-22, GDP growth of India is 8.7%. The GDP for FY 2021-22 is less than the 8.9 % growth estimated by the Ministry of Statistics and Programme Implementation (MoSPI), which releases the GDP data. The 8.7 % growth also falls way short of the Reserve Bank of India's (RBI) estimation of 9.5 percent of GDP growth for FY 2021-22. Even the March quarter growth of 4.1 percent is much lesser than RBI's projection for the period, which was estimated to be at 6.1 percent which is below the expectations.
Repo Rate of RBI is at 4.4% Recently RBI has increased the Repo rate from 4% to 4.4% but it may be increased further to counter rising inflation. Following a surprise rate increase on May 4, several members of the Monetary Policy Committee (MPC) called for more in upcoming meetings this year to control sticky price pressures, which hit an eight-year high last month.
"Most of the hikes will come this year and we expect this cycle to end in April next year...the urgency for more hikes will continue to diminish from Q4 (2022) onwards," said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.
Also, with inflation remaining at elevated levels, the RBI may gradually increase the benchmark lending rate to about 5.75% by the end of this fiscal year, according to Axis Bank Chief Economist Saugata Bhattacharya. RBI Governor Shaktikanta Das has already said the possibility of another hike at the June review is a "no-brainer". The next meeting of the MPC is scheduled for June 6-8. It is expected that another rate hike is coming. So, lets see the Indian stock market and analyze what will be the effect on the Sensex.
Sensex May Continue Downfall The daily timeframe of Sensex shows a downtrend has already started and is headed towards the nearest support level of 55,000. If the index breaks that support, it may drop to the secondary support range of 53,500-52,500 or below in case of a stronger correction.
It is expected that Sensex will remain weak in upcoming weeks because of the possible upcoming RBI rate hike. There is also a possibility of range-bound in the downward direction, but upside momentum is highly unlikely. We expect that the Sensex will be under pressure for some time and it may fall until the given levels and even further.
Price target of 55000
Price target of 53500
Price target of 53500
Shortage of Semiconductors Worldwide. The global shortage of critical semiconductors is likely to last at least through next year and perhaps longer, U.S.
Commerce Secretary Gina Raimondo warned on Tuesday. Shutdowns of key Asian suppliers due to the Covid-19 pandemic crippled supplies last year, just when American consumers, flush with cash from government aid, went on a spending spree buying cars and electronics, which depend on the chips. The US Senate and House of Representatives each have approved $52 billion bills – the CHIPS Act and the America COMPETES Act that would invest in domestic chip research and manufacturing but so far have failed to agree on the final form of the legislation.
"I do not unfortunately see the chip shortage abating in any meaningful way anytime in the next year," Raimondo told reporters following her recent trip to Asia.
This global chip shortage is making it difficult for Indian car manufacturers to produce cars without semiconductor devices and components. Let's take a look at the Maruti Suzuki chart and analyze it to get a potential trade. If we see the chart is currently behaving in a cyclic way, it is good to wait for now and take an Up trade from the 7,000 levels or in the case of aggressive investors selling the call options of Maruti Suzuki India from the 8,000 level and up.
Price target of 7000
Price target of 7200
Risk warning: The content of the article does not constitute investment advice and you are solely responsible for your trading activity and/or trading results.
A term definition or explanation will be here.
Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
In India, the government's financial year runs from 1 April to 31 March the following year. The financial year from 1 April 2020 to 31 March 2021 would generally be abbreviated as FY 2020-21, but it may also be called FY 2021 on the basis of the ending year.
The interest rate in India is called Repo rate.
The term Sensex refers to the benchmark index of the BSE in India. The Sensex comprises 30 of the largest and most actively traded stocks on the BSE and provides a gauge of India's economy.
Support level is a price level or range that is believed to hold a downtrend due to a concentration of demand expected at those levels.
Trading in a range occurs when the price keeps fluctuating within the same price channel for an extended period.
A semiconductor device is an electronic component that relies on the electronic properties of a semiconductor material primarily silicon, germanium, and gallium arsenide, as well as organic semiconductors for its function.