The month gone by – A snapshot

Global economy and markets: Global financial markets witnessed heightened volatility in March due to failure of some mid-sized banks in the US. Although the US policymakers intervened to safeguard depositors, concerns over the health of US financial system continued to persist. This led to emergence of risk-off sentiment.

Financial market stress emerged in Europe also, as concerns over the financial health of Credit Suisse, led to its acquisition by UBS at a significant discount to market price. Swiss policymakers have triggered a complete write-down of Credit Suisse’s AT1 bonds.

The US Fed as well as the European Central Bank raised policy rates last month, as inflation continues to remain elevated. However, financial stability concerns have led markets to price in the possibility of an end to the monetary tightening cycle, especially in the US.

Amidst concerns about global growth, crude oil prices declined by 5% last month; however, prices have rebounded post OPEC+ announcing sharp production cuts over the weekend.

Indian economy: Economic data continues to show resilience

High frequency data points such as industrial production, fuel consumption and credit growth indicate continuation of economic recovery. The credit offtake in Indian economy has been quite strong, primarily led by demand from the services sector. The GST collections for FY23 have been higher than budget estimates. The growth in services exports has emerged as a key contributor to India’s external sector earnings and enabled benign current account position, despite significant volatility in global commodity prices.

Indian Fixed Income market: RBI likely to retain inflation focus

The retail inflation in February eased marginally to 6.4%. With inflation remaining above RBI’s upper threshold of 6% for two consecutive months, the monetary policy committee is likely to raise rates in the upcoming meeting. Market is keenly awaiting RBI’s commentary regarding a possible pause in rate hikes.

Outlook: Despite high inflation, concerns around financial stability risks led to a sharp decline in global yields in March. The US 10-year yield eased by 45bps to 3.5%, while Indian 10-yr GSec yield declined by 12bps to 7.3%. The continuation of global macroeconomic uncertainty is likely to keep debt markets volatile in the near term.

Indian equity markets: Consolidation underway

The Nifty index corrected by 1% in March. Nifty has been consolidating around this level over the last one year, amidst sector rotation. Power, Oil & Gas and Pharmaceuticals outperformed while Information Technology, Metals and Automobile sectors underperformed last month. Foreign institutional investors turned net buyers with an inflow of US$ 1.5 bn in March.

Outlook: The global markets witnessed a small risk-on rally on expectations that monetary policy tightening is nearing its end. While data points remain a mixed bag, the softening of commodity prices is expected to reduce macro-economic pressures.

From a local market perspective, we see valuation comfort emerging after a consolidation of 18 months. The Q4FY23 results, coupled with management commentaries and onset of monsoon remain key events to watch out for, in the near term. We maintain our positive stance on equities given reasonable valuations, stabilizing macro-economic conditions and relatively attractive corporate earnings growth trajectory.