Our Market View

Sanjiv Mehta  |  2023-09-02

The major Indian stock index Nifty 50 broke the streak of 4 continuous positive months and fell by -2.53% in the month of August 2023. However, both the midcap and small cap indices rose by impressive 3.7% and 4.62% respectively. RBI monetary policy in the first week of  August 2023 kept the interest rates at the same level and also maintained the stance of withdrawal of accommodation. 10-year bond yields remained in a narrow range around 7.18%. USD/INR also hovered around the level of 82.50.

The latest GDP data of Aug 31, 2023, showed that India’s economy grew at its quickest pace in a year in the April-June quarter, buoyed by strong services activity and robust demand, but a drier than normal monsoon season could restrain future growth. Gross domestic product (GDP) expanded 7.8% on an annual basis in the June quarter. India remains one of the fastest growing major economies, especially as China’s post-pandemic recovery has slowed. India’s Chief Economic Adviser V. Anantha Nageswaran maintained his 6.5% growth forecast for the full year. GST collection also rose to Rs 1.59 lakh crores, an 11% year-on-year increase. Manufacturing PMI grew to a level of 58.6, a PMI print above 50 means expansion. July inflation numbers were on the higher side at 7.4% because of  TOP vegetables- Tomato Onion Potato and August numbers are also expected to be high before easing off in September. RBI governor Mr Shaktikanta Das has been adjudged the top central banker globally by Global Finance magazine, primarily on his ability to fight inflation while still supporting good economic growth.

Politically, there was an interesting announcement about the Centre calling a special session of Parliament from September 18 to 22. The speculation is that the central government may introduce the ‘One Nation, One Election’ bill,  the Uniform Civil Code (UCC) and the Women Reservation Bill during this special session. Though unlikely, the buzz has started that the Centre may go for an early election or the assembly elections due in five states may be postponed to April-May next year.

Reliance AGM is important since the company is such a significant component of the Indian economy and the stock index. Mukesh Ambani highlighted major initiatives for various components including retail, telecom, oil to chemicals & new energy, as well as a concrete succession plan with the induction of new generation into the board. On the whole, the measures being taken are very positive and progressive and will contribute to the Indian economy.

Globally, an important event was the annual Jackson Hole Symposium in which prominent central bankers, finance ministers, academics, and financial market participants from all around the world gather in Wyoming’s Jackson Hole Valley to debate pressing economic and financial concerns. It has historically been used by Fed chairs to give an update on the state of the economy and to hint at potential policy changes. This time around, the markets got what they expected from the speech: the economy is not cooling as expected, tightening may not be over, the Fed is committed to reining in inflation, and data will guide the Fed’s hand in the future. The main message is Higher(interest rates) for Longer. On economic growth, Powell said that a period of below-trend economic growth and some softening in labour market conditions will likely be needed to get inflation back down to 2 per cent, so speculation that the Fed might tolerate higher inflation was firmly scotched. Non-farm payroll numbers released on Sep 1 showed a little bit of cooling off with the unemployment number rising to 3.8%. China has announced several economic measures recently to improve its economy.

Overall, the recent developments continue to reinforce our view that long term economic growth in India is intact and the consequent equity uptrend remains secure. The correction may continue for some time but eventually, the trend is likely to resume soon and the expectation of good corporate earnings numbers in Oct 2023 could be a trigger. Indian markets have progressed in a much broader way in terms of the size of companies as well as diverse sectors, as compared to the USA market, which has been very narrow with the rally being led by a few technology stocks. In India, multiple sectors have or are expected to do well including capital goods, real estate, industrials, auto components, defence, renewable electronics, beverages and banking.

Consequently, for the medium-term goals (anything above 3 years), allocation to equities should remain on the higher side. Fresh money could be invested in tranches, utilizing the STP route- systematic transfer plan. At this stage, profit preservation should totally be related to individual goals and not because of the market view. If the time horizon of a goal has lessened or if we are close to the target amount, it is prudent to preserve profits after a fast ascent. In terms of rotation, presently large caps might be favoured since small caps and mid-caps have shown a good rise. Therefore, the most effective way is to be invested in good well managed Flexicap, Multicap and  Focus schemes. Also as always, with the global uncertainty, some part of the portfolio should always be invested in high-quality short-term debt funds to take care of liquidity and any contingencies