|The month of July witnessed a very welcome and sharp rally in equities globally. After the sharp fall in the months of May and June, this up move did come as a boost to the confidence of investors. A sharp correction in commodities triggered views that worst of inflation is behind us. The ensuing fall in interest rate yields aiding the sentiments and a decent earnings quarter added to the optimism. Indian equity markets too participated in this global move and rallied sharply with NIFTY50 being up 8.7%, with S&P BSE Midcap and S&P BSE SmallCap 250 keeping pace. There was also a visible change in FII behaviour towards Indian equities. After a record selling of ~USD 50 bn in the past 8-9 months, July saw a turnaround wherein FII’s bought ~USD 0.6 bn. While the absolute figure is modest, it was the change in liquidity pattern which acted as a key catalyst.|
Domestic earnings season has been broadly decent so far with indications of healthy demand environment. Despite there being pockets of margin pressure, there has still been decent profit growth driven by price-action and operating leverage. Q1FY23 earnings season early trend for 91 companies out of NSE 200 shows sales growth at 41% YoY, albeit on a lower base. Margins though have come in at three-year lows, a function of sharp increase in input costs. Profit growth of 13% YoY has been strong, led by sharp increase in profits from the financial sector.
Despite the spill over of the global geo-political tensions and financial market volatility, Indian economy has stayed on the path of improvement and economic revival. The movement of various high frequency indicators reiterates the momentum in the domestic economy. Economic cycle now has more legs (manufacturing revival, capex, global exports) vs consumption led earlier cycle. Macroeconomic factors like fiscal deficit, forex reserves, liquidity etc are strong. India’s macros are well placed within the emerging markets landscape and cannot be missed on global investment landscape. Normal monsoons bode well for the rural economy and an ensuing normal festive season (last two years impacted due to covid restrictions) should aid robust consumer demand over the next few months.