Market Outlook – Mar’23

Relatively resilient performance on the back of global challenges:

The markets in the month of Feb consolidated by about ~2% and it performed as per our expectation and traded between 18300 and 17000 levels. In recent times, Foreign Institutional Investors (FIIs) have been quite cautious about investing in the Indian equities market. According to the latest data, the FII outflow stood at INR 11,091 crore, reflecting their reluctance to take any major investment decisions. There are several factors contributing to this cautionary approach, such as the out performance of Indian equities over its peers in 2022, making it relatively expensive. Additionally, 2023 is the year of multiple state elections followed by the Central elections in 2024, which is causing uncertainty among investors. Moreover, the re-opening of China’s economy is attracting the migration of funds, further adding to the cautiousness of the FIIs. These factors combined have created an environment of apprehension among investors, causing them to tread with caution. However, contrary to FIIs, DIIs have been providing solid support and last month they bought more than 19.2k Crores worth of equity. Nifty closed out at 17303 levels and Sensex closed out at 58962 levels.

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Sectoral performance

Looking at the sectoral performance for the month of Feb, most sectors under performed. However, there were a few sectors that performed positively i.e. Infra, Energy, and PSU banking. 

Here are our views on some sectors:

  1. Auto: The latest dispatch numbers for February 2023 show positive signs for the Commercial Vehicles (CVs) and Tractors segment, with numbers surpassing expectations. The 2W and PV segments, on the other hand, witnessed numbers that were in line with expectations. The dispatches for MHCVs were above estimates, driven by heavy pre-buying before the implementation of OBD-2 norms in April 2023. However, the weak momentum in exports continues to impact overall dispatches. The PV segment continues to perform well, with mid-single-digit growth across Original Equipment Manufacturers (OEMs). With stable demand for tractors, supported by positive agriculture indicators, the dispatches for tractors in February 2023 were above estimates. These trends indicate a positive outlook for the automobile sector, providing a potential investment opportunity for those seeking long-term gains.
  2. Metals: The domestic Hot Rolled Coil (HRC) prices in the traders’ market witnessed a significant rise of Rs 500/te WoW to reach Rs 60,300/te. This surge was on the back of expectations of a further price hike of Rs 1,000-1,200/te by major steel players in March 2023. Despite this hike, India’s export price of HRC remained unchanged WoW at $708/te. The Chinese players are now focusing on Vietnam and UAE markets with competitive offers, resulting in India’s export price to remain stagnant. These market trends suggest that India’s steel industry is facing stiff competition from Chinese players, which may impact the domestic steel prices in the near future. 
  3. Consumer Durables: The white goods and durable sector continues to be a bright spot in the Indian economy, thanks to its strong return ratios, healthy growth potential, and low penetration levels. Despite the challenges posed by the pandemic, the sector has shown resilience and adaptability in catering to the changing demands of consumers. With a growing middle class and rising disposable incomes, the sector is poised for sustained growth in the years to come, making it an attractive investment opportunity for investors looking for long-term gains.
  4. Oil: The outlook for Oil Marketing Companies (OMCs) in FY24E is positive, with several factors contributing to the expected growth. Firstly, the Gross Refining Margins (GRMs) are projected to remain healthy at $10-11/bbl, while demand from China and India is expected to improve by H2FY24E, offering a further boost. Secondly, the overall softer crude and product prices are likely to result in stronger marketing margins over H1FY24E. The combination of these factors suggests a strong outlook for OMCs in the upcoming financial year, with the potential for sustained growth in the long run.
  5. Banking: The latest banks’ sectoral deployment data for January 2023 indicates a robust growth in overall non-food credit, which now stands at Rs132.92trn, up 16.7% YoY, 0.3% MoM, and 12.3% YTD, with retail leading the growth. This trend is an encouraging sign, as it suggests that India Inc, after a period of deleveraging, is now better positioned to embark on re-leveraging. With the recovery in economic activity and an increase in investments and consumption, the growth momentum is expected to sustain at over 12% over FY23-FY25E. This positive trend is likely to create a conducive environment for sustained growth in the banking sector, providing ample opportunities for investors looking for long-term gains.

Important events & Updates

A few important events of the last month and upcoming ones are as below:

  1. The 3QFY23 GDP growth of 4.4% indicates that the growth of the Indian economy is slowing down but this was on expected lines.
  2. The S&P Global India Manufacturing PMI edged down to a four-month low of 55.3 in February of 2023 from 55.4 in the previous month while pointing to the 20th straight month of expansion.
  3. The S&P Global India Composite PMI was up to 59.0 in February 2023 from 57.5 in the previous month. The latest reading pointed to the 19th straight month of growth in private-sector activity.
  4. Foreign exchange reserves which had rebounded back from $524.5 billion to $576.8 billion on 27th Jan23 dipped a little in Feb to $560.96 billion.
  5. The S&P Global India Services PMI increased to a 12-year high of 59.4 in February 2023 from 57.2 in the previous month, beating market forecasts of 56.2 growth due to a sharp expansion in output and the joint-best improvement in new business intakes in 12 years.
  6. Infrastructure output in India increased 7.8% year-on-year in January 2023, the most in four months and following a  revised 7% rise in December.

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Outlook for the Indian Market

The RBI’s decision to increase the repo rate by 25bps in February 2023 MPC was in line with market expectations. This marked a total policy rate hike of 250bps to 6.5%, undertaken to combat inflationary pressures driven by current macroeconomic developments. While the RBI governor highlighted the Indian economy’s resilience over the past few months and the visible uptick in most high-frequency indicators, concerns over adverse spillovers from the global slowdown were raised. Consequently, the RBI revised the FY24 GDP forecast to 6.4% from 6.8% earlier. The Feb’23 policy was slightly on the hawkish side due to concerns about the external sector. Despite these concerns, we believe the Indian equity market will continue to perform well in 2023, trading at a higher premium to EM peers, driven by robust economic growth, strong earnings outlook, robust sectoral demand, the better shape of the banking sector, higher Capex by the government, and increased consumption spurred by the expectation of higher disposable income in the new income tax regime. The outlook for this month on fundamental & technicals is explained.

Fundamental outlook: The Indian market in February 2023 witnessed a mixed trend with volatility in both directions. While a partial recovery was visible by mid-month with some FIIs inflows, macroeconomic challenges led to net selling by FIIs later in the month. As a result, the market closed in the red for the month, reflecting the cautious approach adopted by market participants in response to the ongoing economic challenges. Several economic indicators for India have shown positive momentum in Feb’23. E-way bills generated stood higher than the pre-pandemic average, indicating healthy momentum in trade activity. The upward trend in UPI Transactions has been consistent, indicating a strong pace toward a digitized India. PMI Manufacturing and PMI Services also showed positive trends, with PMI Services expanding at the fastest pace in 12 years. Although GST collections stood at 1.5 Lc Cr for Feb’23, below all-time high collections in Apr’22, they remained above the 1 Lc Cr mark for eighteen consecutive months. These indicators suggest that the Indian economy continues to show resilience and is on track for a sustained recovery.

Technical outlook. In February, the Indian market under performed compared to some of its global peers. However, most of the high-frequency indicators such as auto sales, UPI, PMI, credit growth, etc. are providing positive signals for the Indian economy. The MPC will continue monitoring these economic indicators, and the RBI will continue to ensure price and financial stability while supporting growth. Looking at the technicals, the Nifty 50 has immediate resistance at 17900 and major resistance around 18500 levels for the month of March. There is immediate support at 16800 levels and major support at 16200 levels. The RSI for the Nifty 50 is around 59, which signifies that it is in the moderate zone.

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Outlook for the Global Market

In his testimony before the US House Financial Services Committee, Jerome Powell, the Fed chair, struck a notably hawkish tone. Powell acknowledged that the Fed is willing to increase the pace of interest rate hikes to help inflation return to its 2% target. He cited data indicating that personal income grew rapidly and consumers spent most of the increase. Additionally, Powell noted that the deceleration in inflation had slowed. These statements suggest that the Fed may be taking a more aggressive stance on monetary policy in the coming months. Investors will be closely watching for any further signals from the central bank on its future rate decisions. The European Union has released its final estimate of January inflation figures for both the Eurozone and the EU. According to the report, in the Eurozone, consumer prices rose 8.6% compared to the same period last year, which is a decrease from a high of 10.6% in October 2022, and the lowest level since June of the same year. The data also showed a month-on-month decrease of 0.2% in prices from December to January. Meanwhile, core prices, which exclude volatile food and energy prices, recorded a record high, rising 5.3% in January. However, core prices declined by 0.8% from the previous month. These figures indicate that inflation is still a concern in the Eurozone, and policymakers will need to continue to monitor the situation closely to ensure price stability. China’s economy has been a major driver of global growth over the past few decades, but there are now concerns about several headwinds that could affect its future prospects. These challenges can be grouped into three main areas: demographics, government policy, and external constraints on technology acquisition. Demographically, China is aging rapidly, with a shrinking workforce and an increasing number of retirees. This trend is likely to put pressure on economic growth in the coming decade. Additionally, the Chinese government’s focus on state-led growth could limit innovation and entrepreneurship, which may further hinder economic expansion. Finally, external constraints on technology acquisition could limit China’s ability to develop cutting-edge technologies and products, which could also slow economic growth. Addressing these headwinds will be crucial for China to maintain its position as a global economic powerhouse.

Outlook for Gold

During February, the Gold market experienced consolidation, with prices dropping by around 3.5%. However, the demand for Gold as a hedge against uncertainties continues to remain strong. This is especially true as advanced economies remain concerned about the possibility of a recession. Despite the recent dip in prices, the outlook for gold remains slightly positive to neutral for the near term. Investors may continue to turn to Gold as a way to manage risk in their portfolios and protect against potential downturns in the global economy.

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What should Investors do?

India’s economy is expected to face numerous uncertainties in 2023. However, the country is anticipated to remain in relatively good shape due to strong consumer demand, better corporate performance, and decreasing inflation. The 2023 budget is more stabilizing with a focus also given on growth. The Nifty 50 is trading at a premium valuation compared to other global equity indices, thanks to India’s solid fundamentals, strong macroeconomic indicators, and easing inflation. Interest rate hikes are expected to slow down in the coming months due to moderated inflation. Private sector balance sheets have also improved, which suggests that the private sector is ready to increase spending to boost capex as the investment cycle picks up. However, there are still concerns about inflation and aggressive tightening in advanced economies, which may have a significant impact on some of the Indian companies which heavily rely on these economies for a significant portion of their revenue, which could derail growth expectations.

In conclusion, after analyzing the global and domestic macroeconomic factors, we anticipate that the Indian markets may experience volatility, but overall performance could be positive in the upcoming month. We suggest that investors consider adding quality stocks with solid fundamentals to their portfolios, particularly if they are available at a relative discount. This recommendation is based on our assessment of the current economic conditions, as well as our understanding of the broader trends affecting the Indian markets. By making informed investment decisions and focusing on high-quality stocks, investors may be able to capitalize on the opportunities present in the Indian market while managing their risk exposure.


This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.

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