Market Outlook – Sep’22

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Markets indicating negative sentiment:

The markets in the month of Aug were very volatile and performed as per our outlooks expectation. The Indian market during the first half of the month was on a rally on the backdrop of positive economic indicators but in the later half of the month, it dipped due to the extremely hawkish tone of the fed chairman. The FIIs have returned and for the first time in 10 months, they were net buyers in the month of June and bought more than 22k Crs worth of equity, this is a positive indicator but DIIs for the first time since Feb 2021 have been a net seller and sold about 7K Crs of equity. The Indian market closed the month in positive territory, with an uptrend of ~3%. Nifty closed out at 17700 levels and Sensex closed out at 59500 levels.

Sectorial performance

Looking at the sectorial performance for the month of Aug, most sectors performed positively. There were a few sectors that give stellar returns, i.e Metals, Realty, and Energy, owing to increasing demand due to some positive economic indicators. Only a couple of sectors performed negatively. The ongoing conflict between Ukraine and Russia is still having unintended consequences throughout the world majorly due to the elevated price of oil and gas as Europe tries to cut down its dependency on Russia. Pharma and chemical sectors might face some headwinds in the near term due to pressure on their margins due to a rise in raw material costs. The Auto sector which was battered during 2021 due to supply chain concerns and covid is expected to revive and see demand increase towards the end of this year as well as next year. The sectors which can do well this month include Banking, consumer goods, and Realty/Infra.

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Important events & Updates

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

  1. India’s consumer price-based (CPI) inflation eased to 6.71% in July on an annual basis, from 7.01% in June, owing to easing food and oil prices.
  2. India’s Services PMI rose to 57.2 in August from July’s 4-month low of 55.5, on stronger expansion in new work intakes, the upturn in business activity, and the sharpest rise in employment for over 14 years.
  3. India’s real GDP grew 13.5% Y-o-Y in Q1FY23, led by surging growth in fixed investment spending (+20.1% Y-o-Y) and private consumption (+25.9% Y-o-Y).
  4. India’s trade deficit is at -$28.68B billion in June owing to a surge in petroleum and crude oil imports and the depreciating rupee.
  5. India’s manufacturing sector activity in August (56.2) witnessed the second-strongest improvement in operating conditions in nine months, boosted by strengthening demand conditions and softening inflation concerns.

Outlook for the Indian Market

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The Global markets have been battered due to high inflation and energy prices due to the conflict in Ukraine; this is also having an impact on the Indian economy due to higher energy and raw material prices and the raising interest rate by the Fed has caused the rupee to differentiate so the Indian companies will experience near-term margin headwinds, But the medium-term growth outlook remains strong. India’s real GDP grew 13.5% Y-o-Y in Q1 of FY23, which when looking at it as a standalone is very impressive but the growth was primarily high many due to the low base effect. Reflecting the strength of nominal GDP, the fiscal deficit was up just 6.1% Y-o-Y in the year-to-date, primarily because tax revenue continued to surge. The primary and revenue deficits declined outright in Apr-Jul22, by 40.3% Y-o-Y and 21.6% Y-o-Y respectively. Corporate tax revenue was up 34.7% Y-o-Y, and personal income tax revenue 50% Y-o-Y in Apr-Jul22—both accelerating Y-o-Y in Jul22. Despite the mild expansion in its total spending, government capital expenditure rose 62.5% Y-o-Y in Apr-Jul22, complementing the rebound in private investment that was facilitated by the lower-than-budgeted borrowing by the government. This is precisely the pattern of investment-led growth that will enable India to ride out the global slowdown. The Indian market especially has remained resilient amidst the current turbulent geopolitical condition and looking at the PMI and auto sales, the economy seems to be growing at a rapid pace after getting battered during 2021 due to supply chain concerns and covid. Non-food credit growth is expected to remain robust in FY23 as there are expectations of industrial CAPEX activity in the near future and lending to the services segment has been picking up pace, all of this indicates a positive sign for the Indian economy. The outlook for this month on fundamental & technicals is explained.

Fundamental outlook: The month of September is expected to consolidate, looking at the current macroeconomic factors such as high inflation, depreciating rupee, and elevated energy prices driving the markets. Nifty 50 valuations have moved up and trading slightly higher than the historical average PER valuation of two years forward EPS. High-frequency indicators like GST, Power demand, and PMI continue to be strong and moderation is seen in CPI inflation at 6.71% in Jul-22 vs. 7.01% in June-22 hence the medium to long-term prospects seem positive.

Technical outlook:  The Indian market was the best performing among its global peers in the month of Aug. FII returned last month and were net buyers. DIIs were net sellers and this was mostly due to profit booking. Looking at the technicals there is immediate resistance at 18400 and major resistance around 18900 levels for the month of Sep. There is immediate support at 17200 levels and major support at 16400 levels. The RSI for Nifty50 is around 64 which signifies that it is in a slightly overbought zone.

Outlook for the Global Market

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Globally equity indicesrecovered from the lows in the initial days of Aug22 but ended the month in negative after Fed’s hawkish stance and recession fears. The US economy contracted QoQ for the second consecutive quarter in Q2CY22 and The US market was one of the worst performing amongst the global markets driven by a hawkish Fed tone but after the Fed chairman’s speech, the PCE data was released which signaled an unambiguous deceleration of inflation in July, not only due to declining energy prices but due to the weakening of core prices. Even after the relatively positive employment and inflation data, the Fed is dedicated to maintaining high-interest rates until the inflation gets down to Fed’s long-term average. Inflation data in the Eurozone paints a mixed picture since headline annual inflation hit a record high in July and in contrast core inflation remained tame, both on an annual and a monthly basis. The inflation in the Eurozone is mostly due to increased energy prices due to the cut-off of Russia’s energy supply and this, coming winter might be painful if they are unable to source energy from other producers. The Chinese central bank has loosened monetary policy as economic indicators suggest continued weakness and along with this, as expected the government has reintroduced lockdowns in some major cities due to covid-19 outbreaks and these lockdowns have slowed down economic activities.

Outlook for Gold

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In the month of Aug, the Gold market performed consolidated by around ~3% but the demand for gold as a hedge against rising inflation still remains strong especially now since fears of a recession are amplified. The outlook for gold remains slightly positive for the near term.

What should Investors do?

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As we have indicated, the Indian economy has been one of the best-performing economies currently with good fundamentals, strong macroeconomic indicators, and easing inflation but there are a few concerns such as rupee depreciation which has ballooned import costs and The MPC also expressed concern about imported inflation, arising from the strength of the USD and hence they are taking steps to ensure the rupee’s stable in real effective terms by monetary tightening policies to defend the rupee at INR80/$. After considering all the factors we would recommend the investors to not go for any aggressive investments for this month and add quality stocks if they are available at a discount.

Disclaimer:

This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in

Also read: Market Outlook August 2022

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