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Market Update - Monday, 04 May

Some rumors surfaced during the recording of this update that two US ships have been attacked by Iran. Consequently, oil prices suddenly spiked from $109 to $114, suggesting that an escalation of conflict looks to be back once again. The impact of this situation will be seen tomorrow. As a disclaimer, please read all provided information fully before moving forward.

Looking at the BHEL chart, an unbelievable milestone has been reached……

In other news of the day, the ruling party in the government has acquired more states. The main upset occurred in the state of West Bengal, a region where many believed no other party could penetrate, yet they have done it. This political development is perhaps why the Indian markets were celebrating this morning, with the Nifty reaching almost 24,300. However, in the afternoon, news reports from the war scene indicated that nothing is being resolved right now.

As a result, the market fell a couple of hundred points from that top and closed at 0.51%.

• The Nifty Junior was up 0.92%, performing slightly better than the Nifty.

• Mid-caps rose 0.71%, while small caps were up 0.98% and are currently at the edge of breaking out from two recently made tops.

• The Nifty Bank was completely flat at 0.03%. Overall, the market is not giving too many cues regarding its next direction.

• Gold is also slipping by -0.65%.

• Crude oil was at 109.91, though it moved to 112 following the initial screenshot.

Other Market Triggers

• The heat map shows Reliance and Levers pulling the market up, while TCS, Kotak, Bharti Airtel, and Dr. Reddy’s pulled it down.

• Adani stocks have been doing phenomenally well, as have Eicher Motors and Maruti. HDFC Bank, ICICI Bank, and L&T also contributed to the upward movement.

• Within the Nifty Next 50 space, defense stocks performed very well, with HAL up 5%. Finance stocks like Muthoot and Chola, along with real estate stocks like DLF, also showed strength.

• While there is a general sense of positivity, some stocks like DMart, Mazagon Dock, Tata Capital, and Tata Power were down.

• Specific movers of the day include DB Realty, which rose 20% following a favorable Bombay High Court ruling in a long-running land title case.

• Dr. Lal Path Labs also surged 15% on the back of strong Q4 numbers.

U.S. Market Updates

• In the US markets during the previous session, there were good gains in Oracle, Intel, American International Group, Salesforce, and Charter Communications, all running up 4% to 6%.

• The Dow Jones was down a quarter percent, the S&P was up a quarter percent, and the Nasdaq was up 0.94%. Note that some of these stocks could be part of the Weekend Investing US stock strategy.

• The NASDAQ 100 heat map shows Apple, Micron, and Intel running up very hard. Amazon and Microsoft were also up, as were Google and Broadcom.

• Nvidia, ASML, Meta, and Netflix were down just a little bit. US markets generally appear to be doing reasonably well.

What to watch next ?

• Another significant data point today is the US Dollar to INR chart, which crossed 95.08. The RBI is now exploring steps to mobilize dollar inflows as more reserves are needed to defend the rupee.

• Current reserves are being depleted, so more inflows are required. Perhaps the launch of tax-free NRI bonds is a potential path forward.

• Repatriation dollars from NRIs, especially from the Middle East, have weakened due to the war. This has created a dearth of dollar inflows in that segment, contributing to a brewing crisis of confidence in the Indian rupee that needs to be addressed.

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What To Read This Week ?

The Global Inflation Squeeze: Strategy or Crisis?

The economic landscape is shifting beneath our feet. While we’ve grown accustomed to low, stable prices over the last decade, a new global order seems to be emerging—one where "hot" inflation isn't just a byproduct of supply chains, but perhaps a calculated move by world powers.

1. The Breaking of the "Inflation Ceiling"

For years, the gold standard for developed economies like the U.S. was a 2% inflation ceiling. That ceiling hasn't just been cracked; it’s been shattered. We are currently seeing figures around 3.3% in the U.S., with other nations grappling with 4%, 5%, or even 6%. Most countries are now operating well above their long-term historical averages.

2. The Oil Engine & The Hormuz Factor

The primary driver behind this creep is the energy sector. The logistics of global oil are under immense pressure:

• The Strait of Hormuz: This vital artery carries roughly 45% of the world’s oil. (see the image above)

• Refined Products: Approximately 30% of gasoline and 9% of diesel/jet fuel move through high-risk zones.

• The Lag Effect: We are beginning to see the "lag effect," where rising energy costs slowly bleed into the prices of everyday goods and services, keeping inflation sticky.

3. The "Inflating Away the Debt" Thesis

There is a provocative theory circulating among analysts: The inflation is intentional. Western nations have accumulated massive amounts of debt that have become nearly impossible to service at traditional levels. By allowing inflation to run high:

• The "real value" of old debt decreases.

• Government balance sheets expand in nominal terms.

• Debts become easier to pay off with "cheaper" future currency.

In this scenario, central banks may resist raising interest rates as aggressively as they have in the past, choosing instead to let the economy "run hot" to deflate the debt burden.

4. India’s Unique Vantage Point

While the West struggles with this transition, India remains in a relatively resilient position. Inflation here is under tighter control compared to global peers. Interestingly, because India’s inflation is low, our Real Growth is hovering very close to our Nominal Growth. Experts believe that if global inflation continues to rise, Indian markets might actually find a unique competitive advantage and see potential upside.

Inflation is no longer just a monetary "error"; it is becoming a fiscal "tool." The traditional playbook—where high inflation automatically triggers higher interest rates—is being rewritten. Investors must now account for a "New Global Order" where governments may prioritize debt erosion over price stability.

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