By Mr. Mitul Shah - Head of Research at Reliance Securities
U.S. equities ended lower snapping a four-week stretch of gains. The S&P 500 fell 1.2%, Dow Jones was down 0.2% while Nasdaq declined 2.6% for the week. Comments in recent central bank officials, combined with the release of the minutes from the Fed's July meeting, put the possibility of continued aggressive rate increases back in focus. The yield on the 10-year U.S. Treasury note rose to 2.987% from 2.879% on Thursday.
On Domestic front: Indian equities closed slightly higher for the week with Nifty rose 0.34%, while Mid Cap and Small Cap rose 0.85% and 0.38% respectively. Most sectoral indices ended higher for the week. Nifty Infra gained the most at 1.5% followed by Nifty Consumption and Nifty Energy which were up 1.3% and 1.1% respectively. Nifty Healthcare was the major laggard for the week which plummeted 0.95% followed by Nifty Oil & Gas which was down 0.5%.
With the markets gradually recovering, more companies are firming up their IPO plans. The primary focus for the coming weeks will be on how central banks would tame inflation amid continued fear of a global recession. Meanwhile, the RBI is set to release the deposit and loan value growth data and central banks of China, South Korea will decide on interest rates. S&P Global will release the August flash PMI data of major economies. The annual Jackson Hole Economic Symposium will be held on August 25-27 and financial market participants from around the world would be looking for cues about the near-term prospects of global monetary policies. Despite a multitude of headwinds like rising interest rate, monetary tightening and volatile commodity costs, the Nifty has outperformed global markets since Dec'21. Nifty Although, the commodity prices corrected in few weeks, offers some relief to the adverse macros which supported the market to gain 16% from its Jun'22 low. While DII started selling, FIIs bought worth Rs445bn so far in Aug'22 into Indian equites. The earnings season has ended with strong revenue growth while pressure continued on the margins due to commodity inflation. More downgrade seen in EPS compared to upgrades. We expect Nifty EPS of 800 and 950 for FY23E and FY24E respectively. We expect FII to remain net buyers as valuations are comparatively reasonable while India's growth is high compared to other emerging nations. Though near term negatives in terms of concerns of depreciating rupee, widening trade deficit and volatility in global crude prices continue to exert pressure on economy and equity markets, we expect strong economic rebound, normalized commodity prices, inflation within a targeted range and better visibility in 2HFY23E.