The month that was : May 2023

During the month of May, the most global markets ended negative or neutral except the likes of Japan, Brazil and Taiwan. However, there was a marked difference between sectors, as enthusiasm over AI (Artificial Intelligence) boosted technology stocks. S&P 500 Index remained neutral posting a gain of mere 0.1% as the looming prospect of a government default made investors jittery. Hong Kong was the weakest  market in May, closely followed by China, as investor optimism seen earlier in the year following the post-Covid-19 reopening faded due to disappointing economic data and weakening demand. Indian markets outperformed by ending on a positive note. The Nifty50 Index showed a gain of 2.6% in May while mid-cap and small-cap indices posted a return of 6.2% and 5.1% respectively. All the sectors except Oil & Gas and Metals outperformed Nifty50 Index. Auto and Real Estate were the best performers. The US Fed raised interest rates by another 25 bps and hinted at a pause in the rate hike cycle going ahead. India's April CPI inflation moderated to 4.7% from 5.66% in March, primarily due to favorable base effects and continued softening in commodity prices. March IIP was 1.12% vs 5.8% in February. FIIs bought net USD 4.2 bn worth of Indian equities, while DIIs bought USD 406 mn during the month.

Market Outlook 

While global growth prospects for 2023 were improving at the beginning of the year, the banking crisis in the US in March and lagged impact of rate hikes muted the growth estimates. Now, as the rate hike cycle in the US is likely  to have ended, the near term outlook for the equity market seems to be positive. India, with an estimate of nearly 6% GDP growth in FY 2023-24 is likely to be among the fastest growing major economies. Corporate earnings should also be on a strong wicket since fall in commodity prices will reflect in margin improvement for consumer companies. India is likely to be a key beneficiary of resumption of FII inflows into emerging markets going ahead. We remain positive on Indian equities over the medium term owing to structural levers of the Indian economy. We like sectors such as Financials, Consumption, Cement and Capital Goods which should benefit from consumption growth and capex recovery.

Happy Investing!!