Factsheet Index
Macro and
Equity Market
Outlook
GLOBAL MACRO & MARKETS – May 2023
India’s NIFTY index ended the month in green in May, with a growth of +2.6%, as major global indices ended the month with mixed returns. The S&P500 (+0.2%) and the Nikkei (+7.0%) recorded rises over the month, while the MSCI World (-1.2%), the Euro 50 (-3.2%) ended the month in red as developed market indices markets remained volatile. Among emerging markets indices, the MSCI EM and the HANG SENG both fell by -1.9% and -8.3% respectively. BOVESPA Brazil and MOEX Russia rose, with respective growths of +3.7% and +3.1% MoM in May. LME Metals Index witnessed a dip, with a -7.2% fall, owing to a stronger dollar and weak March quarter trade data from China, which is the largest consumer of major metals, as the market for nickel remained lackluster.
WTI fell by -11.3% and Brent Crude fell by -8.6% in May, as uncertainty around the US debt ceiling and a clouded supply outlook from the OPEC+ (Organization of the Petroleum Exporting Countries plus) talks remained. The Dollar index strengthened by +2.6% over the month, with the Dollar depreciating by -0.6% vis-à-vis the Rupee. India 10Y G-Sec rates fell by -13 bps, while the USA’s 10Y G-Sec yields rose by 22 bps, settling at 6.99% and 3.64% respectively, as uncertainty around monetary policy guidance and US debt ceiling resolutions remained. German 10Y bond yields remained stable, falling by -3 bps over the month, sitting at 2.28%, even as Germany officially hit recession after negative growth in the Fourth quarter of 2023.
Domestic Macro & Markets - May 2023
SENSEX (+2.5) grew in May. BSE Mid-cap and small-cap indices outperformed large-cap indices and were up 6.3% and 5.6%, respectively. Sector-wise, all but two sectors ended in green, namely metals (-2.9%) and oil & gas (-1.6%). Auto (+7.9%), Realty (+7.7%) and IT (+6.7%) indices were the largest gainers. FIIs (Foreign Institutional Investors) continued to be net buyers of Indian equities in May (+$4.95Bn, following +$1.9Bn in April). DIIs (Domestic Institutional Investors) bucked their buying trend of the previous 6 months, recording negative flows (selling -$0.4 Bn).
India's high frequency data update:
Sustained high levels of GST collections, easing retail inflation, resilient core sector outputs, and healthy credit growth bode well for the Indian economy.
Manufacturing PMI:
Manufacturing PMI in May’23 jumped to a 31-month high, reaching 58.7, and remained in expansion zone (>50 points) for the 23rd straight month, as output growth reached a 28-month high. New order growth accelerated to a 25-Month high. Increases in input buying led to sustained and boosted inventory growth. On the supply side, input inflation remained below its long-term average, while sentiment rose to a 5-month high.
GST Collection:
Collections of INR 1.57 Tn (+12% YoY) in May’23 concluded the fifteenth consecutive month of collections over the INR 1.4 Tn mark, following record collections of INR 1.87 Tn in April’23, owing to rises in Import (+12% growth YoY) and domestic transaction revenues (+11% growth YoY). Rising compliance, boosted economic activity and improved consumer sentiment are key drivers of sustained GST collections.
Core sector production:
Core sector production growth moderated MoM to a six- month low of 3.5% YoY in April 2023, against a 3.6% growth in March 2023, owing to a contraction in four of the eight component sectors. Production of Coal, Fertilizers, Steel, and Cement rose by 9%, 23.5%, 12.1%, and 11.6% YoY respectively in April 2023. Natural Gas, Petroleum Refinery Products, Crude Oil and Electricity declined by -2.8%, -1.5%, -3.5%, and -1.4% YoY respectively in April 2023.
Industrial Production:
Factory output as measured by the IIP index growth declined MoM by -1.1% YoY in March 2023 vs a growth of 5.6% YoY in February2023. Mining output rose +6.8% while power generation declined by -1.2% YoY in March 2023.
Credit growth:
Credit growth reached 15.42% YoY as of 19th May 2023 against YoY growth of 11.14% as observed on 20th May 2022.
Inflation:
April 2023’s CPI inflation rate eased to an 18-month low of 4.76% from 5.66% in March 2023, led by the base effect on moderating food and energy prices. WPI inflation continued to drop for the eleventh straight month, with the April 2023 print at a 36-month low of -0.92%, 226 bps down from March 2023’s at 1.34%. Negative Wholesale inflation was experienced for the first time since June 2020, as a result of easing prices across the wholesale basket and a high base from April of last year.
Trade Deficit:
Indian Merchandise Exports recorded a decline of -12.7% YoY to $34.66 Bn in April 2023, while Imports growth decelerated, by -14.1% YoY to a 20-month low of $49.9 Bn. India’s trade deficit narrowed by 24.2% YoY, at $15.24 Bn from $20.11 Bn in April of 2022. For FY23, imports rose +16.5% YoY to $ 714.2 Bn, while exports grew +6% to $ 447.5 Bn, helped by a growth in shipments of petroleum products and electronic goods.
Monthly Performance for Key Indices:
Note: Market scenarios are not the reliable indicators for current or future performance. The same should not be construed as investment advice or as any research report/research recommendation.
Past performance may or may not be sustained in future.
Source: Bloomberg
Market View
As the higher interest rates weigh on the global growth prospect, recent events in the U.S. and European banking sectors have added to the uncertainty. US growth is expected to moderate even further going forward. Anticipated recovery in China post the re-opening also seems to have slowed down. While the inflation may have peaked out globally, but with the elevated levels markets may look for clarity on Central Banks’ stance on the direction of interest rates.
Both from cyclical and structure perspective, India seems to be better placed vs rest of the world. Domestic macro trends have been very resilient despite global uncertainty. Capex has been holding up well, government led manufacturing push has remained robust and there are signs of increasing participation by the private sector. We are witnessing early signs of recovery in rural demand as well as private sector capex revival. These are the areas which may provide support to domestic growth. While demand conditions remain patchy, there has been some improvement from last 6-month lows. Moderating inflationary trend is a key positive. India’s tax collections to GDP, credit to GDP and most importantly rising corporate earnings to GDP reflect transparency and formalisation reforms undertaken in the pre-pandemic period.
Q4FY23 results are reasonable/inline with some recovery in margins and profitability while volume growth has been modest.
We believe volatility may continue to remain elevated in the short term till global uncertainty abates.
Indian markets have been flattish for the last 18 months. The recent underperformance vs global equities have made relative valuations more favourable and in line with the historical average.
As a house we are overweight on domestic demand related sectors as growth and earnings certainties may be higher in related segments.
We suggest investors should have a long-term orientation for equity investments and should consider products based on their investment goals and risk appetite. Investors can look to invest in a staggered manner. Conservative investors may consider asset allocation strategies.
Note: The sectors mentioned are not a recommendation to buy/sell in the said sectors. The schemes may or may not have future position in the said sectors. For complete details on Holdings & Sectors of NIMF schemes, please visit website mf.nipponindiaim.com.
Past performance may or may not be sustained in future
Chart of the month :
India’s Manufacturing Purchasing Manager’s Index (PMI), as collected and calculated by IHS (Information Handling Services) Markit, is a metric to gauge India’s manufacturing activity through its survey of 500 manufacturing companies. June’s Manufacturing PMI number came in at 58.7, the highest since October 2020. This was on the back of accelerated factory order growth (Highest since 2021) and rising inventory stocks, as input costs continued to ease. 28-month high Output growth and resilient demand for Indian produced goods ensured India’s manufacturing sector remained in expansion zone for the 23rd straight month even as global economic growth forecasts remain tepid.
Common Source:
NIMF Research, CEIC, Bloomberg
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