The markets have fallen 4% in the first three months of 2023, making the year pretty dark so far; and darker if you compare it to the 20% rally in the US markets so far. However, last week, the markets snapped the losing streak and rose by nearly 2%.
What’s getting the markets positive?
RBI policy meeting - It’s pretty much a consensus view now that the RBI will hike rates by 25 bps. We too feel there is a need and room for the RBI to act on curbing inflation, which is still a tad bit above comfort levels, while also not being in a situation as tight as the US or Europe, where banks are failing. However, the positivity is coming from expectations of RBI pausing on hikes after that, withdrawing its accommodative stance, and shifting to a neutral stance.
Improving macros - The March edition of the RBI bulletin suggested that the current estimates of India’s growth for FY24 of 6-6.5% may be exceeded. It also states that India’s growth expectations are likely to maintain the pace of expansion, and not slow down. Key manufacturing and services PMI numbers are up for release during the week, which will likely throw more light on economic activity.
Global positivity - Data from the US last week suggested a fall in core personal consumption, which is being extrapolated to lower inflation. In China, PMI data hit the highest level since before the pandemic. Global stocks have been rallying, and adding to the overall positive sentiment since.
Will the positivity last? In the short run, yes! However, we don’t see the markets taking a systematic turn in direction.
Globally, the disconnect between markets and underlying economic conditions is increasingly becoming a larger worry. The Indian markets in that backdrop, with inflation still not below comfort, growth still at risk of falling, and valuations still not below long-term averages, stand more to lose than to gain.