June was another strong month for equity markets globally, as investor sentiments remained buoyant. Amidst a clear risk-on, almost all markets in the world did well. Indian equities too had a strong performance and hit all-time highs. Benchmark NIFTY50 was up 3.5% for the month, while broader markets S&P BSE Midcap and S&P BSE 250 SmallCap continued their positive momentum and were up by 6.2% and 6.4% respectively. The strength in the markets was helped by strong FIIs flows – to the tune of USD ~5.7 bn, highest monthly buying since August 2022. FIIs have now been net buyers for four consecutive months. After a marginal contraction in May, DIIs flows were back to positive to the tune of USD ~0.5 bn.
Global macro-economic indicators look like turning more comfortable as we head to the second half of 2023. Inflation, on the back of softer commodity prices and base effect, should inch down gradually. Thus, despite the US fed’s commentary of more rate increases, our view is that we are now behind the interest rates increase cycle and in fact we should start hearing murmurs of rate cuts towards the end of the year. Lower crude prices are an added big positive for the Indian economy and we are already seeing signs of having a Balance of Payment surplus for FY24. Strong FPI flows also are a positive and given the sentiments globally in favour of India, the flows look like only increasing from here on. PM Modi’s visit to US has also been an added catalyst, with large global companies like Alphabet, Apple, Tesla, Micron, Amazon and others committing multi-billion USD investments in India. Monsoons started off slowly and the risk of El Nino appeared to be real. However, there has been a decisive pick-up in rainfall across India and with a normal monsoon forecast for July, the small risk from monsoon front seems to have receded.
Interest in investing in India appears very strong from both businesses as well as portfolio allocators. Thus, markets look like being in a sweet spot both fundamentally as well as from strong investor interest. From an immediate near- term perspective, June’23 quarter corporate results will set the tone for further movement in the market. While overall markets are trading at a small premium to it’s 10-year average, there are quite a few pockets of froth emerging, particularly in smaller companies. While maintaining our strong and positive view on Indian equities, we would advise restraint in rushing into investing out of Fear of Missing Out.