How the Nifty moved in the month of June 2020?
Unlike the month of May, when the Nifty almost closed flat, positive returns in June were relatively decisive. There was a sharp recovery after the fall in the middle of the month. Key high frequency numbers like the IIP, core sector data and PMI manufacturing are still negative but the momentum is indicating an improvement. Sectors like banks, hydrocarbons and autos played a big role in the Nifty giving positive returns as minutes of the Monetary Policy Committee (MPC) appeared to confirm a dovish stance in the foreseeable future.
There was some pressure on the Nifty towards the middle of the month owing to geopolitical concerns. The real takeaway is that companies are drawing up aggressive plans for expansion and fund raising and that is, perhaps what is really enthusing the stock markets.
Which sectors did better than the Nifty in June 2020?
The big news was that all the key sectors gave positive returns in the month of June 2020. Of course, the extent of returns differs, but this is a vast improvement over May when the gainers and losers at a sectoral level were almost equally split.
The sectors that did better than Nifty can be classified into two buckets viz. hydrocarbons and rate sensitives. Reliance continued to flatter the markets on the upside and it was also joined by others like IOCL, ONGC and GAIL along the way. Quarterly results were bad due to inventory write-offs but that was expected. Markets are betting that with global demand picking up, crude prices should stay above $40/bbl and that opens up the potential of positive inventory write backs in the coming quarters.
Rate sensitives flattered across the board. The MPC minutes were quite emphatic about keeping rates low and that resulted in auto and realty stocks doing well. Private Banks benefited from low rates and also from an expected recovery in credit demand. But the star of the month was PSU banks which gained 26.38%. With PSU banks on an aggressive fund raising spree, capital adequacy may not really be an issue. During the month, Indian Bank, IOB and Bank of India gained more than 40% while Central bank, PNB, Union Bank and UCO Bank gained more than 25%. Of course SBI was relatively tepid with 8.5% returns but other PSU banks more than made up for the shortfall.
Some sectors did not do as good as the Nifty in Jun-20
The two sectors that gave the lowest returns during the month of June 2020 were FMCG and pharma. Interestingly, these two sectors have done extremely since March when the lockdown was first introduced. FMCG companies largely sold food, hygiene and home needs products. The demand for these products was low but had not vanished altogether. Pharma companies were benefiting by taking rapid strides towards finding a solution to the COVID puzzle. However, both these sectors had rallied sharply since March and June was more a case of FMCG and pharma catching their breath. Even IT and metals that had done much better in May also underperformed the Nifty in June.
Finally, some signs of a risk-on shift in June 2020
The big take-away from the June stock market data is that there is a subtle risk-on shift that is happening in the markets and the first indications have come in June.
• Secondly, the erstwhile defensive sectors like pharma, FMCG and the IT index underperformed in June. On the other hand, the high beta sectors like private banks, oil, autos and PSU banks did a lot better. That could be the big takeaway from June 2020.
In a nutshell, the big risk-on shift in stock markets may have just begun!