The month gone by – A snapshot
Global equity markets witnessed a correction in September, as investor sentiment was affected by comments regarding withdrawal of monetary policy support by central banks. The European Central Bank (ECB) has announced a pare back of its asset purchases, while the US Fed has indicated that tapering may start in the coming months. Many emerging market (EM) central banks continue to normalise monetary policy.
Inflation pressures continue to persist globally, exacerbated by significant increase in energy prices, including crude oil as well as natural gas. Economic activity in China was impacted by credit concerns in the real estate sector, and adverse impact arising from significant shortfall in electricity production.
Indian equity markets closed at near record levels in September. Both emerging markets as well as developed markets declined by 4% last month.
Domestic economic activities gain momentum
Global rating agency S&P has retained India’s FY 2022 GDP growth forecast at 9.5%. It has stated that ‘high-frequency indicators suggest a strong (economic) rebound over July-September’ period. The pace of vaccinations continues to improve with 90 crores doses having been administered. This has given various state governments confidence to relax Covid-19 related restrictions in a phased manner. The economic recovery is expected to gain momentum as the economy opens further.
With activity level reviving in the economy, a mild uptick in credit growth is visible. We expect uptick in credit offtake in the upcoming festive season.
RBI likely to reiterate monetary policy support
The RBI continues to emphasize the need to provide an enabling monetary policy environment for revival of economic growth. The August inflation number declining to a four-month low at 5.3% will provide Monetary Policy Committee the leeway to maintain an accommodative monetary policy stance.
Outlook: In the upcoming Monetary Policy meeting, we expect RBI to take measures to enable an ‘orderly evolution of the yield curve’ and prevent excessive volatility in the market. From a market perspective, the key monitorables are global monetary policy tightening, sharp increase in energy prices as well as supply side constraints.
Equity markets continue to soar
The buoyancy in Indian equity markets continued with Nifty gaining 3% last month. The strong flows from domestic investors and acceleration in economic activities helped indices close at all-time high levels. The domestic-facing sectors saw strong outperformance. Power, Real Estate and Infrastructure sectors outperformed while Metals, FMCG (Fast Moving Consumer Goods) and Information Technology underperformed in September.
Outlook: While domestic macro-economic scenario is improving, the global growth indicators have started to show signs of softening. The supply-side disruptions can lead to inflationary pressures globally, which could adversely impact consumer sentiments. In the near-term, investors would keenly focus on the upcoming Q2 FY2022 results season and management commentaries. We expect markets to consolidate post the sharp rally.