By Narendra Solanki
Markets have shown robust bounce back from the lows of last month which is about 10% on NSE Nifty 50 and about 15% for Midcap100. The recovery was driven by some support coming from global factors which saw commodities prices falling, relieving markets of some respite in raging inflation fears alongside sustained favourable domestic economic environment and attractive valuations in some pockets emerging post correction.
If one looks at the data for the past twenty years, the current year is the first instance which posted five negative monthly returns in its first six months for Nifty 50. So the markets have cut significant slack in terms of valuations, also the growth momentum looks durable from top line basis although there is some pressure visible in margins front which is also improving as overall inflationary environment recedes in second half of the year, further giving strength to earnings.
Coming to the near term, immediate events which markets would be watching closely are US Fed policy meet and its comments on further glide path and terminal rates keeping in mind the recessionary fears which markets have shown. Also if you go by market expectations, the markets are pricing the US Fed to continue to hike rates in the current year with a pause in sometime around the first half and then starting to cut either in the second half of 2023 or early 2024.
On the domestic economic front, macros in the last twelve-months have been much better versus previous. Economic activity and growth measured by various indicators like Investments, passenger traffic, foreign trade, GST collections, PMI data, production related data, electricity consumption etc. have shown consistent improvement. There is no major deterioration in economic or corporate fundamentals with most economic activities, demand-supply, and funding are in good shape.
On the sectoral front, currently good traction is visible in sectors like Capital Goods, Engineering and Industrials while sectors like Financials, Realty and Durables are showing some signs of improvement. IT, Tech, FMCG and Healthcare continue to remain out of favour with some value pockets emerging post correction. Metals continue to remain negative due to macro concerns.
(Narendra Solanki, Head- Equity Research (Fundamental), Anand Rathi Shares & Stock Brokers. Views expressed are the author’s own.)