Market Outlook – May 2023

“Investing is a journey of self-discovery. It reveals your relationship with money, your tolerance for risk, and your ability to stay disciplined in the face of uncertainty.” – Jeremiah Say

Indian equities rebounded sharply in April, on the back of strong domestic macros, healthy corporate earnings, and consistent intuitional buying (FII & DII) & mainly due to RBI’s surprising decision to pause at the April meeting amidst a gloomy outlook that prevailed in March.

For April’23, Nifty bounced 4.1% to close above 18k after 4 months of weak performance. Broader market witnessed higher action with Nifty Midcap 100 gaining +5.9% while the Nifty Small Cap 100 rose +7.3%, outperforming the Nifty.

Positives in April:

  • India’s manufacturing PMI at a 4-month high.
  • GST collection zoomed 12% to a record high of Rs1.87 lakh crore.
  • Q4 Corporate earnings is in line so far with a Profits of 26 Nifty companies, that had declared results till 4th May’23, have risen by 10% YoY (v/our est. +7%).
  • RBI pausing rate hikes, the impact of rate hike might be seen on earnings for next 1-2 quarters.
  • Sharp fall in Crude Oil Prices.
  • WPI Inflation eases to 29-month low 0f 1.34%.

Global Markets: Global cues were mixed. While both US Fed and ECB raised interest rates by 25bps with a likely pause ahead, slower economic growth expectation, led to sharp fall in crude oil prices. That apart banking crisis continues in US adding to the concerns. Washington is also staring down a June 1 deadline to raise the debt limit to allow continued borrowing to cover already accrued bills or risk the nation’s first modern-day default, which would rock the U.S. economy and send out global shock waves as well.

Threats ahead: Even after raising interest rates to multi-year highs and at one of the fastest paces, most countries are struggling to bring inflation back within their target bands. This is in the context of nearly six months of disinflationary trends from peak inflation rates and of consistent rate hikes globally.

Slow pace of inflation fall will lead to higher for longer policy rates policy, which will create recessionary scenario in Developed countries. Though chances of recession in India is nil, but recession in developed markets will slow down growth in India as well.

Market Outlook – May: The recent bounce in markets is capped on the higher side. Earnings have improved but not that high which will lead to new highs for indexes. We expect Nifty to be in the range of 17800-18500 for this month.

A considerable fall in inflation in US and a clear pause from US Fed will trigger next rally. Though monsoons are predicted to be normal this year, but any negative surprise will also have a big impact on Indian markets.

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.