The month gone by – A snapshot
Global markets rose in October on expectations of relatively slower pace of monetary tightening, as growth concerns came to the fore. The US fed raised rates by another 75bps with a hawkish commentary. The European Central Bank also raised interest rates by 75bps. The Bank of England withdrew its emergency bond purchase programme.
The US economy continues to remain resilient despite the recent rate hikes. It registered positive GDP growth in July-September quarter, after two quarters of decline. However, signs of slowdown are becoming increasingly visible with PMI indicators suggesting slowdown in October. However, the European economy continues to deteriorate due to disruption in energy supplies and continuation of geopolitical tensions.
Global markets were positive during October with S&P 500 up 8% in the month. Indian equity markets outperformed EM peers (Nifty up 5.4% vs MSCI EM Index down 3.2%). Crude oil prices rose in October, spurred by announcement of production cut of 2mn barrels/ day by OPEC.
Indian economy continues steady recovery
A buoyant festive season is likely to support growth in 3QFY23. The recent commentary by Indian companies suggests that urban growth has been slightly better than rural growth. Credit growth is trending at 18% despite rise in interest rates, supported by growth in retail as well as services sector.
Rural sentiments improved in the festive season, after initial uncertainties around Kharif crop. The prospects for Rabi crop are looking good, which is likely to further support rural demand going forward.
Global bond yields trend higher, Indian yields range-bound.
India’s CPI inflation increased to 7.4% in September from 7% in August, mainly led by higher food prices. Unseasonal rains are likely to keep food prices volatile in the near term. RBI expects CPI inflation to moderate by 4QFY23 enabling it to revisit the monetary tightening stance.
Outlook: Developed market bond yields continued to rise with US yields up by 23bps over last month. US yields had touched 4.20% during the month before moderating to 4% levels. Given the global macro-economic scenario and upcoming policy announcements, we expect Indian bond yields to be volatile in the near-term.
Equity markets witness high volatility
Nifty was up by 5.4% in October led by a relatively strong earnings season (so far), supportive global cues and buoyant festive season sales. Banks, Capital Goods and Information Technology outperformed while FMCG and Metals underperformed. FII participation in October was negligible.
Outlook: The global macro-economic environment continues to remain challenging amidst tightening monetary conditions, geo-political stalemate and asset market volatility. Escalation in Russia- Ukraine tensions and suspension of shipment of grains and fertilisers from Black Sea ports remains a risk for global inflation.
Indian markets continue to outperform its global peers as firm recovery is being witnessed across financial, consumption and industrial sectors. This is likely to support earnings growth and premium valuations. However, global headwinds could induce intermittent volatility in financial markets. In the near term, we expect markets to consolidate. We maintain a positive outlook on Indian equity markets.