But Dow Futures recovered in the U.S. session on the progress of COVID drug hopes infra stimulus passage and debt limit hikes coupled with U.S.-China trade truce. Again, Dow Futures came under stress in the early European session Monday on the renewed concern of China’s Evergrenade debt default, U.S. debt limits lingering political drama, and the concern of stagflation. As a result, India’s Nifty also slid over -50 points from the session high.
And Dow Futures further tumbled in the U.S. session Monday as Fed’s Bullard sees two rate hikes in 2022 amid surging inflation. Dow also tumbled as contrary to earlier expectations, Biden admin may not go for any pro-active steps for U.S.-China trade truce and may also continue Trump tariffs in present form. Overall, equities were under pressure on the renewed concern of the U.S.-China trade/cold war and widespread global outage of various social media platforms including Facebook (NASDAQ:), WhatsApp, Instagram, and Twitter (NYSE:) (partly); techs were under stress. India-50 (SGX Nifty) was down over -100 points late Monday.
Now from global to local, on Monday Indian market was boosted by upbeat economic data like lower budget deficits for H1FY22, and better than expected manufacturing PMI. On Friday, Markit data shows that India’s Manufacturing PMI increased to 53.7 in September from 52.3 a month earlier and above market consensus of 51.8, indicating a stronger expansion in overall business conditions across the sector.
“Both output and new orders expanded at a faster rate, amid the easing of COVID-19 restrictions. Meanwhile, new export orders increased at a faster pace, though one that was modest overall. At the same time, employment little changed, as many firms reported the compliance of government guidelines surrounding shift work. Prices data showed input cost inflation accelerated to a five-month high, due to a faster rise in fuel, raw material, and transportation prices. Output prices, however, increased at a slower and only moderate rate. Lastly, business confidence improved.
Indian manufacturers lifted production to a greater extent in September as they geared up for improvements in demand and the replenishment of stocks. There was a substantial pick-up in intakes of new work, with some contribution from international markets. Companies continued to purchase extra inputs in September, but jobs were little changed over the month. In some instances, survey participants indicated that government guidelines surrounding shift work prevented hiring.
After subsiding in each of the previous two months, cost inflationary pressures intensified in September. Strong demand for scarce products contributed to the increase in input costs, as did rising fuel and transportation rates. Only a small proportion of this additional cost burden was passed on to clients, however, as seen by a slower and only modest increase in factory gate charges.”
Overall, India’s manufacturing sector was robust ahead of Festival season sales. At a glance, sales of goods are quite upbeat amid pent-up demand and as there are few COVID restrictions. The country is now operating almost 95% of pre-COVID levels.
Looking ahead, there is a risk that the Indian thermal power sector may be soon out of raw materials (coals) amid supply chain disruptions (heavy rainfall domestically) and skyrocketing global prices. Coal-fired power stations had an average of four days’ worth of stock of fuel at the end of last month, the lowest level in years, and down from 13 days at the start of August. More than half the plants are on alert for outages. As per reports, with coal used to produce almost 70% of electricity, spot power rates have surged, while supplies of the fuel are being diverted away from key customers including aluminum smelters and steel mills.
Like China, India is also undergoing soaring electricity demand as industrial activity rebounds after COVID curbs were lifted and a slump in local coal output. India meets around 75% of its thermal coal demand locally, but heavy rains have flooded mines and key transport routes. Aluminum producers are among major power users that complained after state-run miner Coal India (NS:) curbed supplies of the fuel to heavy industry to prioritize deliveries to electricity generators.
But India’s coal secretary said the situation is under control and by the 2nd week of October, there should be an increase in coal supplies by Coal India:
“Supplies to power plants are currently short by between 60,000 and 80,000 tons a day on the impact of the prolonged rains that have drenched coal pits. Unusually heavy downpours last month in Dhanbad, a major coal-mining center in the east of the country, have worsened the situation—-Coal India should be able to increase supplies enough by the second week of October to cover the deficit at power plants, although that will depend on the weather. However, it will take much longer to replenish the badly depleted stockpiles.”
Apart from the energy crisis, the market will also focus on RBI meet 8th October. RBI may signal QE/GSAP tapering and an increase in reverse repo rate; i.e. tightening to stay ahead of the inflation curve.
Technically, whatever may be the narrative; now has to sustain over 18050 levels for 19250-19625 levels; otherwise sustaining below 18000-17875 levels (by Mar’22), Nifty Future may target 15600-15180 levels. Similarly, now has to sustain above 38300 levels for 38650 and above that 43800-45400 (by Mar’22); otherwise sustaining below 38200, may slip to 34300-33500 zones.