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    Market Review

    The month gone by – A snapshot

    Global markets corrected sharply in April as the continuing Russia-Ukraine war, and Covid-19 related lockdowns in China aggravated the impact on global supply chains. Both IMF and World Bank have reduced global growth forecasts for 2022. 

    In the backdrop of high inflation, global central banks led by the US Fed, have initiated monetary policy tightening. The US Fed is expected to hike interest rates in the upcoming FOMC meeting. The European Central Bank has indicated that it may cease its asset purchase program in the coming months. Economic activity in China has been severely impacted due to the adverse impact of Covid-19 related lockdowns.

    Global equity markets declined by 8% in April, as most developed market yields saw a sharp increase. Indian equity markets outperformed global markets with a 2% decline, as outflows by foreign investors were partially compensated by domestic inflows. Crude oil prices continue to remain elevated, as the Russia-Ukraine war has added to supply concerns.

    Domestic economy continues steady recovery

    RBI, as well as IMF and World Bank, have reduced India’s GDP growth forecast ‘as higher oil prices are expected to weigh on private consumption and investment’. March inflation data suggests that high input prices, in both agriculture as well as non-agriculture products, are gradually being passed onto consumers. However, despite the headwinds, India is projected to witness the highest growth in 2022 amongst major economies. High frequency indicators such as GST collections and PMI (Purchasing Managers’ Index) suggest a steady recovery in economic activities. 

    RBI pivots from supporting growth to managing inflation

    Retail inflation in March was above RBI’s threshold for the third consecutive month. RBI has indicated that it will ‘focus on withdrawal of (monetary policy) accommodation’. The central bank is expected to gradually withdraw the ‘easy monetary policy’ measures it had initiated during the pandemic.

    Outlook: Domestic yields increased sharply in April, as the market started to price in the possibility of a tightening monetary policy. High supply of government securities in FY2023 is likely to weigh on domestic debt market sentiments. Given this backdrop, we expect a gradual increase in domestic yields in the coming months. 

    Equity markets consolidate amidst high volatility

    After a 4% surge in March, Nifty index fell by 2% in April as geo-political uncertainties impacted investors’ sentiments. Oil & Gas, Power and Automobile sectors outperformed while Information Technology, Metals and Banking & Financial Services (BFSI) sectors underperformed. Foreign Institutional Investors sold equities worth US$ 3.3bn during the month. 

    Outlook: Global macro-economic outlook is turning less sanguine owing to geo-political uncertainties, slowdown in economic growth, high inflation and tightening monetary conditions. These factors are likely to have an adverse impact on corporate profitability and valuations. 

    Indian markets continue to outperform global peers owing to relatively better economic growth, corporate profit outlook and strong domestic flows. However, global headwinds continue to impact foreign investors’ sentiments. We expect markets to remain volatile in the near term. Our stance on Indian equities remains positive from a medium to long term perspective. 

    Disclaimer

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