Mr. Mitul Shah - Head of Research at Reliance securities
The U.S. equities closed mixed on Friday, with Nasdaq closed 0.5% lower while the S&P 500 lost 0.2%. The Dow Jones gained 0.2%. For the week, Nasdaq rose 2.1%, the S&P closed 0.4% higher and the Dow lost 0.1%. FED likely to shift away from interest-rate increases. Bond prices fell, with the yield on the benchmark 10-year Treasury note jumping to 2.838% from 2.674% on Thursday. The labour market added 528,000 jobs in July, more than double of estimates also returned payrolls to their pre-pandemic level. Meanwhile, the unemployment rate fell to 3.5%, near historic lows. During the week, the Bank of England raised interest rates by 50 bps to 1.75%, highest in 27 years
On Domestic front: Indian equities closed higher for the week led by positive earnings session and softening commodity prices. For the week, the Nifty rose 1.4%, while Mid Cap and Small Cap rose 0.7% and 1.6% respectively. All sectoral indices ended higher for the week except Nifty Reality (-2.9%). Nifty IT gained the most at 2.8% followed by Nifty Auto and Nifty Metal which were up 2.1% and 2% respectively. The earnings season has largely been positive so far, 65% of BSE 500 companies (declared so far) reported revenue growth of 37% YoY while EBITDA and PAT grew by 23% YoY and 17% YoY respectively. The RBI raised interest rates by 50bps in order to curb inflation. 50bps repo rate hike to 5.4% by the RBI makes the policy rate is the highest since Aug'19. On the positive note, maintaining the real GDP growth forecast of 7.2% for FY23. It seems to be more worried about external global factors this time, which has weakened INR recently. The 3rd consecutive rate hike by RBI since May'22 cumulatively 140 bps in its effort to contain inflation would certainly increase cost of borrowing and would impact few consumer sectors. We expect real estate sector to remain most affected, while financial sector would be benefitted with the likely NIM expansion with higher spread.
The RBI retained its CPI inflation forecast of 6.7% for FY23, assumes the average price of crude oil for the Indian basket at $105 per barrel. The real GDP growth forecast of 7.2% for FY23. The Indian economy faces headwinds from global forces such as geo-political tensions, rising financial market volatility, tightening financial conditions and recessionary concerns. The Russia-Ukraine war continue to play a key role in affecting global markets. The Indian equities gained 14% since Jun'22 low, the rise in repo rate coupled with the inflation is likely to impact the market in the near term. However, we expect strong economic rebound, normalized commodity prices, inflation within a targeted range and better visibility in 2HFY23.