Market Outlook – October 2023

“Winning money is 80% behaviour and 20% Knowledge”.Dave Ramsey (American radio personality who offers financial advice, writer)

– Dave Ramsey (American radio personality who offers financial advice, writer)

The domestic market witnessed volatility in September as concerns over higher interest rates, foreign capital outflow and global economic slowdown weighed on sentiment. However, the Nifty 50 ended the month with a gain of 2 per cent while the Sensex rose 1.5 per cent.

Positives in September:

  • GST Collection hits ₹1.62 trillion in September, marking the fourth highest monthly collection since the inception of the indirect tax regime and a 10% annual growth from the year-ago period.
  • The inflation rate cooled off from 7.44% to 6.83% in August & further expected to drop till 5.3% in September.
  • J P Morgan includes India in the Global EM Bond Index.

Negatives in September:

  • 10-Year US Treasury Yields near the 15-Year high (4.704%) on fears of further rate hikes – the main reason for fall in worldwide markets.
  • Gold price fell to a 13-month low at $1816/ounce & US Dollar index spiked to an 11-month high at $107.
  • Crude Oil touched 95$ per barrel, the highest level in more than a year.
  • FIIs sold 26,692 Cr in September, removed 47,312 Cr’s in last 2 months.

What to look forward in October?  –  another volatile month…

  • RBI Policy meeting is due on October 6, 2023. The markets are expecting interest rates to stay intact. – Positive for markets.
  • Q2 results to start coming. Traditionally it is a good quarter for markets. – Positive for markets.
  • Oil prices expected to cool off in October – rising crude supplies and pressure on demand from high-interest rates started to impact oil prices. – Positive for markets.
  • Rising US treasury yields as US inflation is expected to be sticky which means higher interest rates in the US for longer – a Big Negative for markets.
  • Cricket World Cup, Durga Puja, Dussehra – Airlines, Hotels, Consumption will see a big positive uptick. – Positive for markets.

US Treasury Bond Yield: What It Is and Why It Matters?

Treasury bonds (T-bonds) are government debt securities issued by the U.S. Federal government that have maturities of 20 or 30 years. T-bonds earn periodic interest until maturity, at which point the owner is also paid a par amount equal to the principal.

Treasury bonds are part of the larger category of U.S. sovereign debt known collectively as Treasuries, which are typically regarded as virtually risk-free since they are backed by the U.S. government’s ability to tax its citizens.

This bond also tends to signal investor confidence. The U.S Treasury sells bonds via auction and yields are set through a bidding process. Prices for the 10-year bond drop when confidence is high, which causes yields to rise. This is because investors feel they can find higher-returning investments elsewhere and do not feel they need to play it safe.

But when confidence is low, bond prices rise and yields fall, as there is more demand for this safe investment. Put simply, falling yields indicate caution in the markets. This confidence factor is also felt outside of the U.S. as it points to the future of the global economy. The geopolitical situations of other countries can affect U.S. government bond prices, as the U.S. is seen as a safe haven for capital. This can push up prices of U.S. government bonds as demand increases, thus lowering yields. 

This is exactly happening in markets right now. Fed’s continuous rate hikes to tame inflation had a very little impact, which remained elevated. US markets are resilient, and all economic indicators are showing positive nos. This will not allow the Fed to change its mind on rate cuts. More hikes or higher rates for longer will impact the economy negatively in turn keeping bond prices higher.

A 5% bond rate for 10 Years in dollar terms is good enough attraction for funds to flow from across markets back to US treasury markets – big reason why we have seen a heavier FIIs outflow in last couple of months.

Though domestic investors are buying it, but they will be not able to match the volume of FIIs and hence more corrections in markets is not ruled out.

October Forecast: We expect markets to be choppy. Nifty will take strong support at 19,200 and 20,000 will have resistance on the upside. One can look at allocating 10% of fresh funds each in Gold & Silver, as prices have seen a sharp correction and are at attractive rates to buy.

Happy Investing!!!

Mushtaq Kazi
Mushtaq is the co-founder of Mushtaq has had corporate stints with Kotak Securities & IIFL group. He holds an MBA degree from Pune University.
His interests include cooking & gardening. When he is not cooking or gardening, he is writing.