Mr. Mitul Shah - Head of Research at Reliance Securities.
Indian equities closed higher led by positive global cues and moderate growth in WPI. Nifty rose 0.7%, while broader markets out-performed the main indices as Nifty Mid Cap and Nifty Small Cap gained 1.2% and 1% respectively. All sectoral indices ended in green except Nifty Media (-0.3%) and Nifty PSU Bank (-0.4%). Nifty Auto gained the most at 2.5% followed by Nifty Reality and Nifty Oil & Gas which were up 2% and 1.5% respectively. The WPI inflation moderated to 13.93% in July as against 15.18% in June, primarily due to lower food, metals and chemical prices. However, the number has remained in double digits for the 16th consecutive month.
The U.S. equities ended higher, extending their recent winning streak, while commodity prices fell. The S&P 500 added 0.4% after capping a fourth consecutive week of gains on Friday. The Dow Jones gained 0.5% while Nasdaq advanced 0.6%. The yield on 10-year U.S. Treasury slipped to 2.790% from 2.848% on Friday. Brent crude prices fell 3.1% to end at $95.10 a barrel. The market is looking for cues about the pace of the Fed's next rate hike in the minutes of FOMC meeting which is expected on Wednesday.
With the earnings season nearing its end, most companies witnessed a strong revenue growth with continued pressure on the margins due to commodity inflation. For 1QFY23, revenue of NSE 500 companies increased by 39% YoY, while EBITDA and PAT grew by 19% and 23% respectively. Nifty gained 16% since its June low but we expect markets to remain volatile in the near-term. However, strong economic rebound, normalized commodity prices, inflation within targeted range and better visibility is expected by 2HFY23, which would transform Nifty valuation to close to its historical average. Our FY23 target for Nifty is 19,000 at 20x FY24E EPS. FII investments have started in past few weeks and are likely to continue. While oil and commodity prices have softened over the past few weeks on fear of a global recession, supply chain bottlenecks and effects of the Russia-Ukraine war, remain the major overhangs for the Indian economy.