The month gone by – A snapshot

Global markets navigated through uncertainty as regional conflicts in West Asia, high energy prices and tighter liquidity across financial systems dampened risk appetite. Although central banks largely kept policy rates unchanged, global conditions remain tight, as policymakers maintain a restrictive stance. Bond yields rose to multi-year highs amid concerns over fiscal sustainability. In addition, any potential shift in policy priorities, following the outcome of US mid-term elections, may influence the broader geopolitical backdrop as well as investor sentiment.
MSCI World Index declined by 1% while MSCI Emerging Market Index declined by 8%. Concerns around global energy supplies led Brent crude prices to rise by 14% in October.

Economy: Sustained growth amid challenging global environment

India’s growth momentum has held firm. Recent data points such as GST collections, industrial production and bank credit growth have been strong. Growth expectations for India have been revised upwards by several domestic and international institutions, including the IMF, World Bank, OECD and Reserve Bank of India, reflecting resilient domestic demand, steady investment activity and favourable services sector momentum.
Nevertheless, the growth outlook faces certain challenges in the coming months. Deficient monsoon rainfall and lower reservoir levels may weigh on agricultural output and rural demand, while higher food and energy prices could exert pressure on household consumption. Despite these headwinds, strong domestic demand, healthy credit growth, ongoing infrastructure investment and supportive policy measures are expected to help the Indian economy maintain its growth momentum.

Equity Market: Domestic fundamentals remain supportive

Indian equity markets remained volatile during October as rising crude oil prices, escalating tensions in West Asia and persistent foreign portfolio outflows weighed on investors’ sentiment. Foreign Institutional Investors (FIIs) sold Indian equities worth US$2.2 billion while Domestic Institutional Investors purchased equities worth US$6.5 billion.
Near-term market performance, however, may be influenced by trend in energy prices, geopolitical developments, and monetary policy actions by central banks. Notwithstanding these uncertainties, India's growth trajectory remains amongst the strongest globally. The corporate results, announced so far, have been above expectations and outlook remains strong. The recent moderation in valuations provides a favourable entry point for long-term investors, reinforcing our positive outlook on Indian equities despite the likelihood of short-term volatility.

Fixed Income market: MPC raises rates amidst inflation risks

Inflationary pressures have been moving up in recent months, driven largely by elevated food and energy prices. While headline inflation remains within RBI's tolerance band, risks from higher crude oil prices, supply-side disruptions and weather-related developments warrant close monitoring. Given these risks, the RBI’s monetary policy committee raised policy rates last month. Analysts expect further rate hikes by the MPC in coming months.
Volatility in global bond yields and expectations of further rate hikes contributed to a sharp uptick in domestic yields last month. Markets were especially concerned by geopolitical tensions in West Asia contributing to a significant increase in energy prices. RBI’s measures to tighten domestic liquidity conditions also contributed to uptrend in yields.
Looking ahead, the movement in crude oil prices, domestic inflation trends, monetary policy developments, and global bond yields will remain key determinants of domestic interest rates in the near term. From a medium to long term perspective, given India's relatively stable macroeconomic fundamentals and prudent monetary framework, current elevated yield environment can be considered an opportune time to increase allocation towards fixed income assets.