We wish each of our investors a "Very Happy & Wealthy New Financial Year 2023-24". While FY23 may not offer a great reading on equity returns from Indian markets, one needs to see the big picture. FY23 was hurt by;
- Economic headwinds on global and domestic fronts; Russia-Ukraine war, energy prices, a hawkish monetary policy of both the US Fed (450 bps hike) and the RBI (250 bps hike).
- Markets consolidating on the back of 2 great years of equity market returns.
- Huge FPI selling of approx. 30bn$ for the year. Despite the quantum of selling, flat markets convey a healthy role domestic investors play in buying for the long term.
As we review what lies ahead for the financial markets in FY24, an apt summary could be the recent tweet by Bloomberg columnist Daniel Moss "It's still the Fed's world. We just live in it". History shows that financial markets move with investor sentiments influenced by Fundamentals (long-term, economic growth etc.) &/or Liquidity (short-term, monetary policy etc)
For March 2023, Indian markets trended most of the month downwards, but the sharp rally in the last 2-3 trading days helped close on a flattish note. Sector-wise, Energy, Metals, FMCG, Pharma & Financials outperformed, while Auto, IT & Realty underperformed Nifty. Globally, the markets had sharp swings, with the interest rate and ALM issues in some US banks dominating the fundamentals, as higher rates impacted the viability of these banks.
The sentiments, however, changed for the better as the feeling of the Fed being forced to review the monetary policy stance dominated investor moods. US stocks had a nice rally post the Fed policy meeting, where it raised rates by 25 bps.
The NASDAQ led the rally in US stocks as investors bet on the Fed pivot. CY22 had seen NASDAQ correct by 33% as an increase in rates hit valuations of the tech sector.
While the Indian market has a connection with Fed policy (global sentiments, risk appetite, asset allocations, valuations etc.), the Indian economy has a direct connection with RBI's monetary policy.
RBI's stance impacts the cost and availability of money, which affects economic activities & GDP growth and the distribution of profit pool across sectors. RBI policy has been in a similar direction with Fed in the last three years, and we expect that linkage to continue when Fed moves to a stance of no more hikes or actual easing.
While the fundamental change in RBI's view will be known over the next 2-3 policy meets, we expect the economic growth to increase and corporate India's profit pool share to change as corporate borrowers get more comfort on interest costs.