Chief Economist at the National Stock Exchange of India
The June print of CPI inflation at 4.8% makes it clear that the central bank’s concern on prices has been well-founded. Core inflation has remained entrenched at 5.2%, and parts of the food basket remain high, thanks to erratic rains. The MPC has rightly concluded that the recent pause in the policy rate action should not be construed as the end of the tightening cycle. Our June report had highlighted the distinction between Indian and US inflation, while they nudged the 4% figure. In contrast with the Indian data, US inflation has dropped to the 3% figure, levels last seen in Mar’21. To get a sense of how far (and fast) events have unfolded there, note that in between these two 3% prints, inflation there had jumped to 9% in Jun’22, the highest since May’80. Given the cautionary note from the Fed, it may not (yet) be the end of the tunnel there as well. Markets, however, seem to have other ideas, going by the trajectory of the US markets this year.
In fact, the last two months have seen global equities pricing in the scenario of easing inflation without an incremental tilt towards recessionary conditions. Recovery in the US and Euro Area have led to growth upgrades by multilateral institutions, even as questions remain on the Chinese recovery after the recent 2Q GDP print. The other global macro story is the US dollar’s sustained drop this year. More on this in our macro roundup. While the jury is out on how long the downward trend would play out, the macro implications are significant.
Closer home, the South-west monsoon began erratically this year, a week late from the long-term average, then covered the country rapidly. A deficient June (-9%) was followed by excessive rainfall in July, bringing the total to parity by mid-month. That said, the distribution this year has been uneven, with parts of northern India receiving well above average (+47?ove LPA), normal rainfall in Central India and a 22?ficiency in the Southern peninsula.
Indian markets, while lagging early in the year, are playing catch up as foreign inflows returns after the exodus last year. The rising trend of the last three months, after a lull of more than a year as easing inflation, a better GDP print than expected and relatively robust macro fundamentals have showcased India’s attractiveness to global investors. The market benchmark NIFTY 50 is at 19700 levels as we write. Across the listed universe, small and midcaps have outperformed vis-à-vis the broader market. More on this in our market roundup.
Our Story of the Month this time analyses the 4th quarter (Q4FY23) corporate earnings for Nifty 50 and Nifty 500 companies. The analysis shows that while topline growth moderated for the third quarter in a row, weighed by weakening external demand and falling commodity prices, operating profit margins improved on easing cost pressures. Our analysis of earnings revisions for the top 200 companies by market capitalization points to modest downgrades for yet another quarter, even as the extent has come off, led by export-oriented and commodity sectors (IT, Pharma and Materials). We also take a close look at the overall and sector-wise distribution of Nifty 500 companies across major financial parameters.
Among new investors, Uttar Pradesh continued to lead for the fifth month in a row, while Maharashtra has picked up in the past two months. Overall active investor participation—defined by at least one trade in the month—rose to 8.9m for the CM segment and remained around 3m for derivatives. Average no. of such investors in the market has remained on an upward trend over the past few years, even if the monthly retail net investment figure has been muted. Meanwhile, the monthly SIP inflows have been around Rs140bn for the past few months; also signifying the increased retail interest in the markets since the pandemic.