Market Outlook – June 2023

“Speed is the currency that you want to maximize on today. Most people just go too slow. They think too long, and they never take any action.”

Grant Cardone (Entrepreneur, author, speaker, investor, and coach)

Nifty gained 2.6% to 18,534 in May’23, closing higher for the third consecutive month. The benchmark is now just a few points away from its all-time high of 18,887 recorded in Dec’22. Broader market witnessed higher action with Nifty Midcap 100 up +6.3%, while Nifty Small cap 100 rose +5.6%, sharply outperforming Nifty.

If you had bought the top 5-6 blue-chip stocks, then you’re already down by -40%, while index is trading at a life high.

Positives in May:

  • RBI kept the repo rate unchanged at 6.50% on expected lines.
  • India’s Q4FY23 GDP rises to 6.1% in Q4, FY23 clocks growth rate of 7.2%.
  • Retail inflation eases to 4.7% in April; March IIP falls sharply to 1.1%.
  • GST collection grew 12% to Rs.1.57 lakh crore in May’23, crossing the Rs.1.5 lakh crore for the 5th time since introduced.
  • Q4 corporate earnings have been impressive, with Profitability in line with our expectations. Nifty’s earnings grew 16% YoY (vs. est. of +14% YoY) in 4QFY23.
  • India’s trade deficit in April, falls to lowest in 21 months.

Threats ahead:

  • Fed further hiking rates in June meeting.
  • Weaker monsoon due to El-Nino effect.
  • Rise in inflation due to subpar rainfall.

How to predict Indian Markets with Oil prices? India is heavily dependent on imports for its oil requirement. India’s reliance on imported crude oil is at record high of 87.3% in FY23. India’s domestic consumption of petroleum products in 2022-23 rose over 10 per cent year-on-year to a record 222.3 million tonnes, making us world’s third-largest consumer of crude oil and also one of its top importers.

Who impacts Indian market? Indian-listed firms are majorly owned by private promoters and foreign investors (FIIs). Private promoters owned around 45.13% of Indian listed companies, followed by foreign investors (FIIs) whose ownership is around 20.15% currently.

This makes FIIs the largest non-promoter shareholders in the Indian market. On the other hand, mutual funds owned around 7.75%. Retail investors, meanwhile, hold around 7.42% of the domestic market.

Since promoters of company do not indulge in trading and just hold onto their stakes, it is the FIIs which determine the path of Indian markets. FIIs strategy is to invest in India when crude oil prices are down and withdraw when it is rising (a historic trend).

Oil is a major input for several industries. When crude oil prices rise, naturally, input costs and overall production costs also rise. This causes profit margins to fall which in turn reduces the stock price of that company. Conversely, a fall in oil prices produces the opposite effect. For every US $10 increase in the cost of oil, the current account deficit increases by 0.55% and the Consumer Price Index (CPI) increases by 0.3%.

Crude oil prices are expected to trade in the range of 65-75$ per barrel for the next 6 months. Reason being, recessionary pressure in US & European markets, rising interest rates has led to global economic slowdown. Start of summers in European countries means lesser fuel burn for heating purpose, till next winter.

Hence India will be a bigger beneficiary of lower crude prices in coming months. With valuations in fair zone, decent corporate earnings, good monsoons, festive seasons and robust consumption, will clearly lead markets touching new highs. We expect Nifty crossing 20K levels by Diwali.

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.