The strength in markets continued in August with markets reporting a second consecutive month of positive returns. Volatility was high as global markets corrected sharply towards the end of the month, led by renewed fears of sharp interest rate hikes and resultant spike in US 10-year Gsec yields. Dollar Index also hit a new high, triggering another bout of risk-off globally. Amidst all this, Indian equities outperformed major global markets. NIFTY50 ended up 3.5% for the month, while S&P BSE Mid-cap and S&P BSE Small-cap 250 indices outperformed large-cap indices. Except IT sector, all the other sectorial indices closed in green with S&P BSE Power, Capital Goods and Consumer Durables indices gained sharply around 15%, 8% and 8% respectively.
Indian equities have shown remarkable resilience over the last couple of months. This is particularly noteworthy given the continued volatility in global markets. On the economy front, India has stood out with outlook for GDP growth continuing to be over 7% for FY23 in a world where economies are struggling to avert recession. The added opportunities for Indian manufacturing on the back of China+1 move as also increasing competitiveness of Indian companies because of high power costs elsewhere in the world, is adding to the optimism. Domestic demand outlook is very strong led by increasing spending in the ensuing festival and wedding season – the first normal one in three years post Covid related shutdowns. Both rural India – led by record agricultural produce and high agri product prices, and urban India – led by income level increases particularly in the IT services and financial sector; is seeing increased activity and that gives confidence of a strong economic outlook. From a global investor perspective, Indian equities are coming back in focus, given the resilient economy and currency.
Although Indian markets looked relatively better, this very sharp outperformance in the global context has surprised lot of market participants. While we continue to believe that Indian equities will do much better than most global markets, in the absolute near-term select euphoria is being witnessed in the markets. The recent moves have been more allocation related and also momentum based. News flows globally will continue to lead to high volatility and patience and careful discretion should be the strategy going forward.