Market Ahead Podcast, Sep 2: Top factors that could guide markets today

A pullback in large-cap stocks dragged benchmark indices away from record high levels on Wednesday.

The S&P BSE Sensex plunged 581 points from its record high level of 57,919 to end at 57,338 while the Nifty50 retreated from its all-time high level of 17,226 to end at 17,076.

Profit booking was seen in information technology counters after a recent outperformance, along with underperformance in the metal pack on China disappointment.

China's factory activity slipped into contraction in August for the first time in nearly one and a half years as Covid-19 containment measures, supply bottlenecks and high raw material prices weighed on output in a blow to the economy.

And as China is the world's third largest metal importer, contraction in the manufacturing activity soured sentiment on Dalal Street. The Nifty Metal index fell 2 per cent with Tata Steel, Nalco, Hindalco, and Jindal Steel falling up to 3 per cent.

That apart, mixed trends in the auto pack also grabbed eyeballs on the bourses on Wednesday. M&M, Maruti Suzuki, and Hero MotoCorp declined up to 3 per cent on the bourses, and analysts believe the underperformance is likely to continue.

The sector is grappling with multiple headwinds that include semiconductor shortage, rising input costs and competition from the electric vehicle (EV) segment.

According to analysts at Jefferies, chip shortages have already started to hurt Indian auto production where companies such as Maruti, Bajaj Auto and Royal Enfield have seen an increased impact in the September quarter.

That apart, raw material costs have been another sore point for the Indian automakers.

Indian steel prices, according to reports, are at an all-time high of Rs 67,500/tonne, which is 5 per cent above their June quarter average. Spot aluminum price at $2,674/tonne is also 12 per cent higher than the June quarter average.

Against this backdrop, A K Prabhakar, head of research at IDBI Capital says that though the stocks' valuations are attractive, auto stocks will continue to remain under pressure.

Additionally, G Chokkalingam, founder and CIO, Equinomics Research opines that chip shortage, rising fuel costs for consumers and firm input costs for auto manufacturers will keep the demand in check. And, as a result, most of the auto stocks will underperform in the second half of FY22.

With this bearish commentary from analysts, performance of the autos will be on investor radar on Thursday.

Weekly expiry of F&O contracts, stock-specific news flow, outcome of the OPEC+ meeting, and foreign fund flow will be some of the other factors guiding the markets today. Also, adjustment to 100 per cent peak margin norms may add volatility.

In the primary market, public issues of Vijaya Diagnostic and Ami Organics will enter their second day today. Yesterday, the former's IPO had been subscribed just 30 per cent while the latter's IPO had sailed through, backed by strong retail and QIB support.