Mr. Mitul Shah - Head of Research at Reliance Securities.
U.S. equities bounced back on Friday, while it closed lower for the week, after mixed retail earnings and hawkish Fedspeak. On Friday, the S&P 500 rose 0.5%, Dow Jones bounced 0.6%, while Nasdaq was flat. The yield on the 10-year Treasury note rose to 3.82% from 3.77% Thursday. For the week Dow Jones was down 0.1%, the S&P 500 index fell 0.8% while Nasdaq was down 1.6%. On the economic front, U.S. existing home sales fell for a ninth straight month in October as high mortgage rates pushed buyers out of the market. Sales of previously owned homes declined 5.9% in October from the prior month to a seasonally adjusted annual rate of 4.43mn, the weakest rate since May'20. October sales fell 28.4% YoY, the biggest annual decline since Feb'08.
Domestic equities closed lower for the week as hopes of a slower pace in interest rate hikes have faded. The Nifty lost 0.2%, while broader markets underperformed the main indices as Nifty Mid Cap and Nifty Small Cap fell 1.6% and 0.95% respectively. Most sectoral indices ended in red for the week. Nifty PSU Bank and Nifty Pvt Bank gained the most at 2.4% and 0.4% respectively. Nifty Media and Nifty Consumer Durables were the major laggards which plunged 5.4% and 2.2% respectively. The markets await on more cues on the macroeconomic front as the US Federal Reserve will release minutes of FOMC meeting held on November 1-2. At least five central banks including China and South Korea will decide on interest rates. The fall in inflation in the month of October in the U.S has sparked the market's newfound confidence that US central bank may slow the pace of its interest rate hike.
India has managed to perform well bolstered by its strong economic fundamentals. 2QFY23 results season has largely concluded. At the aggregate, Nifty 50 companies managed to exceed Street estimates. However rebound in earnings of the banks and financial services companies have led the Nifty 50 index to witness modest cuts in earnings estimates at the aggregate level. Profit margins of most manufacturing sectors came under pressure due to elevated input costs and subdued realizations which is adversely impacting operating cash flows of private companies. While the recent decline in input costs provide relief, much also depends on consumer demand. We expect a recovery starting 3QFY23 led by softening of commodity prices and monetary easing by central banks which is likely to boost demand. The Federal Reserve is unlikely to slow the pace of its interest-rate increases in the near term which can impact the market in the coming weeks, however, India is likely to see a multi-year economic up-cycle led by strong macros, and various government initiatives.