Indian Stock Markets: Covered By a Dark Cloud

Published by Sharekhan Education | October 3, 2022

Indian Stock Markets: Covered By a Dark Cloud

India, as well as the world economy, seems to be going through a blind spot. US FED has been selling US treasuries at an accelerated pace which has pushed up interest rates and crowded out the private sector, globally. The tightening of interest rates has impacted the global balance of payments. The market movement has been very volatile as concerns are emerging about growth.

Signs of weakness:

Some of the high-frequency indicators in India, such as electricity generation, and railway freight are showing signs of weakness. Bank credit growth of 15.5% YoY in Aug’22 has witnessed a broad-based pickup across segments (industry, services, retail, and agriculture). However, some service-related indicators such as air traffic, and petrol consumption are providing a cushion. Tightening liquidity, inflation and trade would stall the domestic credit and Capex cycle. The uneven rainfall has impacted the sowing and potential output of rice and pulses and would put pressure on the overall food production.

Fiscal Policy:

On the fiscal front, government spending has moderated led by defense and infrastructure spending. Rural spending, subsidies, and social spending by the government are also contracting.  As the rupee appreciated RBI intervention has been aggressive but on the flip side it has increased the chances of a potential derailing of the economic recovery.

Investments:

Foreign portfolio investors turned net buyers in July’22 (USD 0.6 billion) after a gap of nine months. The inflows gathered momentum in August (net inflows of USD 6.4 billion). Domestic investors continue to be active in the stock markets but have slowed down on the back of rising interest rates and moderating equity returns. SIP (Systematic Investment Plan) contributions in May-August ’22 have sustained over Rs. 12,000 crore/month. Average inflows in 5M 2022-23 have been 43% higher than the same period last year.

Nifty earnings have been downgraded led by companies with substantial exposure to global trade. The market valuation is now trading at a fair range and we at Sharekhan Education prefer blue chip stocks with stable earnings and debt-free status.

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