Covid-induced restrictions are taking a toll on the asset quality of banks and this may put pressure on Bank Nifty. “While Nifty is expected to see a 52-week high, the same may not happen for Bank Nifty. Downward pressure in Bank Nifty will be trigger for any upcoming weakness in Nifty, which can take it down to 15,200 levels,” says Uttekar.
Since easy liquidity is one of the reasons for the rally, investors need to be careful about actions by central bankers. However, options are limited for RBI due to falling growth rate and stubborn inflation. In its latest monetary policy committee meeting, RBI left key policy rates unchanged and also demonstrated that the accommodative monetary policy will continue till the economic revival is well entrenched. So, when can inevitable rates increase action be expected? “We maintain our base case assumption that narrowing of repo corridor may happen in latter part of 2021-22 and a gradual repo normalisation in the start of 2022-23,” says Amit Triphati, CIO- Fixed Income, Nippon India Mutual Fund.
(Narendra Nathan/ET Bureau)
Sector update: Specialty chemicals
Demand-supply of chemicals will be hit: Margins likely to cool off from fourth quarter onwards
After a strong rally across chemical products in the past eight to nine months due to a supply shortage, demand recovery and some plant closures across the globe, prices have started stabilising in some pockets, thanks to steady crude prices in March-April 2021. For most chemical products under our scanner, prices have increased only in single digits in May versus the increase of high teen figures in the past couple of months. Some of the chemicals that have seen a sharp m-o-m price hike in May are benzene (20%), phenol (15%), methanol (9%), toluene (8%) and butadiene (8%).
However, supply situation is again likely to be disrupted for some of the chemicals as a good round of maintenance shutdown is lined up across the globe in the next couple of months. Manufacturing plants of chemicals such as benzene, styrene, MEG, butadiene, bisphenol-A and hydrogen peroxide (mostly in China and some in Europe) are up for overhauling, while force majeure is still in place in European chemical companies. Further, post the biggest shipping industry blockage in history at Suez Canal in March, container movement is likely to be affected till July-August.
Meanwhile, the covid second wave in India is raising operational concerns for most chemical companies. Imposition of lockdowns by numerous states might affect the domestic demand-supply situation. We expect margins that had swelled up in the second and third quarter will start cooling off for most chemical companies from the fourth quarter, and in the first quarter of 2021-22, we will see some margin contraction in most of the companies.
For our coverage universe, in our view, margins of SRF and Navin Fluorine should remain firm in the specialty chemical business with lower input ratio of key raw material fluorspar. For Camlin Fine Sciences, price of key input phenol has risen since August 2020 and is up 44% q-o-q in the international market while domestic prices remain flat. We believe that higher prices of phenol could be absorbed with the benefits from the new Dahej facility, which is running at over 70% utilization level.
(Emkay)
