“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”
— Peter Lynch (American investor, mutual fund manager, and philanthropist.)
Markets have gained month-on-month, but Year-on-Year it is still at-par levels. Valuations are also stretched and with mixed quarterly results, upside remains capped. Markets can break previous highs but will mostly remain range bound.
Major Events in October & its impact on markets:
- Fed Rate Hike: Fed hiked its interest rate by 75 bps, increasing it from 3.25% to 4%. This is the fourth consecutive rate hike of 0.75% and the sixth rate hike this year. These rate hikes are the fastest cycle in history, pushing borrowing costs to a 15-year high. The Fed has struggled to reduce inflation. The annual inflation rate in Sept. 2022 was 8.2%.
Impact – Negative. Markets have risen post rate hike, expecting rate hike cycle to end soon and inflation also peaking out. If data comes opposite of this, markets may correct again.
- Decline in Crude Oil Prices: Crude oil prices have corrected below USD 100 per barrel mark and trading around 90’s level.
Impact – Positive. Low crude prices will help bring down inflation, hence pause in interest rate hikes by Central Banks.
- Ukraine-Russia War Continues: There is still no sign of de-escalation of current war. Though Russia is pressured to restart peace talks, but the response remains muted.
Impact – Negative. Winter has started and Europe is heavily dependent on Russia for gas supply. Any further escalation may lead to a higher energy price, keeping inflation elevated.
- Q2 Results: The 2QFY23 corporate earnings have been in-line thus far with heavyweights, such as RIL, HDFC Bank, SBI, TCS, ICICI Bank, and Infosys, registering in-line aggregate performance.
Impact – Positive. The spread of earnings has been decent with 70% of declared results meeting or exceeding profit expectations. However, the growth is being led by just BFSI and Autos with Metals, Oil & Gas and Cement posting a YoY earnings decline.
Heavy selling by FIIs has paused and inflows are clearly visible, which has led to market advance steadily in October. All eyes will be on US November CPI Data. High numbers will again bring FIIs selling, while a fall in CPI data will bring new highs for markets.
November Outlook: we expect markets to continue its positive run, but with limited upside (Nifty Target levels – 19k on the upside and 17.5k on downside). Qtr2 numbers till date has been in-line barring few sectors. We expect inflation to cool down and with it the rate hike cycle as well.