The month that was: February 2023

During the month of February most global markets ended negative on the back of declining hopes of pause in rise of interest rate in near future. US CPI climbed 0.5% Month on Month in January after a 0.1% increase in December. Minutes of the recent meetings of the the US Fed suggest that the Central Bank is willing to increase the interest rates further as inflation remains a concern. Equity markets in China have done relatively well on the back of reopening of economy and Government focus on prioritizing growth. Taking global cues Indian markets ended in negative during the month but outperformed some emerging and developed markets. Like previous month, premium valuation of India led to FII flows moving towards China. The Nifty50 Index declined 2% in February while mid-cap and small-cap indices were down 2% and 3.1% respectively. Power, Metals and Oil and Gas underperformed while FMCG and Capital Goods outperformed. FIIs sold net USD 112mn worth of Indian equities, while DIIs bought USD 2.3 bn during the month.

Market Outlook

With improving growth prospects, upgrade in GDP estimates for 2023 is likely for many developed economies. Strong growth parameters are expected to emerge from China post COVID reopening with government target of 5% growth in 2023. Domestically, India’s expected growth rate of 5.5-6% in FY24 is likely to be the best among major economies. Also, corporate earnings have been positive with Nifty50 companies expected to post double digit growth in FY24. With the recent underperformance of Indian markets against emerging markets, valuation premium of India has come down to reasonable levels.  After correction in our market due to adverse report on a large conglomerate, the investor sentiments are expected to improve as the conglomerate has raised nearly $2bn from secondary sale to repay loans linked to pledged shares. This could lead to improved performance of Indian markets combined with decreasing outflow of capital from India to China. Possibility of El-Nino impacting monsoon this year adversely remain the key risk for Indian markets as rural economy has not yet recovered to pre COVID levels. Also, any fallout of high interest rate on liquidity levels of US banks could lead to a risk off scenario globally. We remain positive on Indian equities over medium term owing to structural levers of Indian economy and like sectors such as Financials, Consumption, Cement and Capital Goods which should benefit from consumption growth and capex recovery.

Happy Investing!!