Macro and
Equity Market
Outlook
Equity Market
Outlook
GLOBAL MACRO &
MARKETS – October 2023
India’s NIFTY index ended the month in red, ending -2.8% MoM in
October. The S&P500 (-2.2%), the Euro 50 (-2.7%), the MSCI World
(-3.0%), Japan’s Nikkei (-3.1%) all ended the second consecutive
month in negative, as global markets remained volatile. Among the
emerging markets indices, the MSCI (Morgan Stanley Capital
International) EM, the HANG SENG, and BOVESPA Brazil corrected
marginally in October, by -3.9%, -3.9%, and -2.9% respectively. The
MOEX (Moscow Exchange) Russia bucked the negative trend, with
growth at +2.2% MoM (month on month).
LME (London Metal Exchange) Metals Index declined sequentially
by -3.1% in October, as China’s Manufacturing PMI (Purchasing
Manager's Index) slipped into contraction zone in October, coupled
with a stronger dollar. WTI (West Texas Intermediate) and Brent
Crude slipped in October, by -10.8% and -8.3% respectively, even as
the threat of supply side disruptions from the Israel- Hamas
conflict remained. The Dollar index strengthened by +0.5% through
October, with the Dollar depreciating by -0.2% vis-à-vis EM
currencies and appreciating by +0.3% against the Indian Rupee.
India 10Y G-Sec yields rose, rising by +14 bps, while US 10Y G-Sec
yield rose by +36 bps, and the German Bund yield fell by -3 bps,
with rates settling at 7.36%, 4.93% and 2.80% respectively. The surge
in yields of the US government bonds is a function of the
perception of high fiscal indebtedness of the US sovereign and a
recent pullback from foreign buyers.
Domestic Macro &
Markets - October 2023
The BSE SENSEX (-3.0%) fell in October, in tandem with other
benchmark Indian indices. BSE Mid-cap underperformed the
SENSEX and was down -3.4%. The BSE Small Cap index
outperformed, with a fall of -1.7% over the month. Sector-wise,
Realty, FMCG, Auto and consumer durables indices were the top 4
performers over the month, clocking +3.7%, -0.9%, -1.2%, and -2.3%,
respectively. The worst performing index was the BSE Power index,
which fell by -4.9%. Market breadth declined MoM, with stocks
trading above their respective 200-day moving averages
declining to 69% from 85% from September 2023, and the advance
decline line was down 11% MoM.
Net FII (Foreign Institutional Investors) flows into equities were
negative for October (-$2.6Bn, following -$1.8 Bn in September
2023). DIIs (Domestic Institutional Investors) remained net buyers of
Indian equities (+$3.4 Bn, from +$2.6 Bn from last month). YTD, FPI
net buying stands at US$12.1 Bn, while DIIs have bought stocks worth
US$19 Bn.
India's high frequency data update:
Elevated levels of GST collections, festive season demand uptick,
stable retail inflation, deflated input inflation, rising core sector
outputs, and elevated credit growth augurs well for the Indian
economy.
Manufacturing PMI (Purchasing Manager's Index):
Manufacturing PMI in October 2023 came in at 55.5, down from 57.5 in
September 2023, and remained in expansion zone (>50) for the 28th
straight month, as output expanded at the slowest level in 8 months
given a tepid rise in new orders, which fell to a 12-month low.
GST Collection:
Collections of INR 1.72 Tn (+13% YoY) in October 2023 concluded the
twentieth consecutive month of collections over the INR 1.4 Tn mark,
the second highest recorded since the inception of the regime,
following record collections of INR 1.87 Tn in April 2023. The average
monthly gross collection this fiscal year is INR 1.66 Tn. Rising
compliance, rising formalization of the economy, festive demand,
and improved administrative efficiency have driven sustainedly
high levels of GST collections.
Core sector production:
The index of eight core sector industries grew by 8.1% in September
2023, against an 12.1% jump in August 2023, as a favourable base
effect continued to come into play for India’s eight core sectors,
albeit at a slower pace. Seven of the constituent sectors recorded
positive YoY growths, with crude oil production declining by -0.4%.
Industrial Production:
Factory output as measured by the IIP index accelerated to a
14-month high of 10.3% in August 2023, vs a growth of 6% YoY in July
2023 (upwardly revised by 30 bps), buoyed by growths in all 3
constituent sectors- Mining, Manufacturing and Electricity.
Credit growth:
Scheduled Commercial Bank Credit growth reached 19.32% YoY as
of 6th October 2023 against YoY growth of 17.93% as observed on
7th October 2022.
Inflation:
September 2023 CPI (Consumer Price Index) inflation rate eased
below the RBI’s comfort zone of 6% for the first time in three months,
and reached 5.02%, easing from 6.83% in July 2023. Acceleration in
the CPI rate was attributed to a slowdown in the food basket
inflation, which came in at 6.56% in September 2023, compared to
the 9.94% rise in August 2023. WPI (Wholesale Price Index) inflation
remained in negative territory, with the September 2023 print at a
six-month high of -0.26%, 26 bps up from August’s at -0.52%, as
food, fuel and chemicals remained in the deflation zone.
Trade Deficit:
Indian Merchandise Exports recorded a decline of -2.6% YoY to
$34.48 Bn in September 2023, while Imports growth declined by
-15.04% YoY to $53.84 Bn. India’s trade deficit narrowed $19.37 Bn as
the dollar strengthened.
Events that you may watch out for in November 2023:
War and Oil:
Further escalation of conflict between Israel and Hamas and the
risk of a contagion remain key monitorables for equity markets. Oil
supply side disruptions through war, coupled with supply cuts from
key producers Saudi Arabia and Russia may leave prices
vulnerable to elevated volatility.
Earnings season:
The ongoing Q2FY24 earnings season in India has been better than
expected, even as the market holds a cautious stance in terms of
price performances post announcements of results. Remaining
results may set the tone for Earnings revisions across the board for
Indian stocks.
State election outcomes:
Five states (Rajasthan, Chhattisgarh, Madhya Pradesh, Telangana,
and Mizoram) will head for polls in November 2023, as general
elections loom in early 2024. These elections may drive public
sentiment going into the Lok Sabha elections and remain a key
monitorable for equity markets.
Festive season demand:
November 2023 bodes well for India’s private consumption and
demand, as the festive season beckons, with Diwali commencing
an uptick in festive demand in the country.
Central Banks commentary:
While the US Federal Reserve (Fed) chose to hold interest rates on
November 1st 2023 for the second consecutive time at a 22-year
high level of 5.25-5.5%, the Bank of Japan widened their yield target
band, with 1% as a reference “upper band”, and 0% as a target yield
on their 10-year bond. The European Central Bank (ECB) decided to
hold rates steady after 10 consecutive hikes in October 2023. The
Reserve Bank of India (RBI) kept the key policy repo rate unchanged
at 6.5% in the October 2023 meet, holding rates constant for the 4th
consecutive time. Monetary policy commentaries were driven by
caution on energy and food inflation shocks, and decoupling in
policy stances may be seen in the coming months.
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
Past performance may or may not be sustained in future.
Source: Bloomberg
Market View
Global economic trends remain mixed and challenging. The
geopolitical events in Israel -Gaza, US bond yields touching historic
highs and slowing growth in developed world etc, present
near-term headwinds.
On the positive India macros remains robust with strong
manufacturing growth, improving economic activity, slowing
inflation etc.
Local events like forthcoming state & general elections, global
developments like rising crude oil prices, mixed signals on global
growth etc appears to be ignored in the current euphoria. Large
Caps appear to be better positioned on a relative basis and along
with Asset Allocation products like Multi Asset Funds, Balanced
Advantage etc may assist to manage the near term risks. Investors
apprehensive of the equity market swings can consider
participating in a staggered manner in line with their risk appetite
and investment goals.
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
Past performance may or may not be sustained in future
Chart of the month :
India’s trade deficit narrowed to USD -19.37 Bn in September 2023,
as imports fell faster than exports, and the trend of the deficit
narrowed (12 Month Moving average), pointing at improving
economic fundamentals.
Common Source:
NIMF Research, CEIC, Bloomberg
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