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chief investment officer
Dr. Poonam Tandon
Chief Investment Officer

Market Matters April 2023

Indian equity market indices rose sharply during the month despite elevated global macro-uncertainties led by continuing turmoil facing US Banking sector. Indian fixed income markets saw continuing moderation of yields tracking retreating crude oil prices and inflation trajectory. INR appreciated against the USD during the month.   

Global equity markets saw developed market equities rallying on the back of strong economic data even as headline inflation moderated aided by retreating energy prices. US Fed & European Central Bank (ECB) increased their policy rates by 25 bps each. Global bond yields fell as First Republic Bank became the latest bank to collapse which continued to raise broader concerns around the financial sector health and fears of contagion in the US banking sector. Gold and silver prices rose sharply on safe haven buying demand. Crude oil prices fell on recessionary concerns. Domestically, RBI MPC unexpectedly paused in its rate hike cycle. Inflation cooled off, PMI & IIP rose and GST collections rose to record high levels.  

Global inflation remains above the long-term average despite the recent moderation. Economic activity globally remains resilient in face of mounting challenges. Global central banks continue to prioritise inflation control over supporting growth. But the cumulative fallout of unprecedented rate hike cycle of global central banks has raised the contagion risk especially in the US as another US bank collapsed. But, high and sticky core inflation and labour market strength continued and supports the hawkish monetary policy narrative of central banks. However, central bankers would have to increasingly maintain a balancing act between supporting growth and taming inflation. Prolonged Russia-Ukraine military conflict has compounded global uncertainties as supply disruptions have further exacerbated inflationary pressures. Domestically, terminal policy rates could be around the corner on the back of easing of inflation over the next few months. However, food inflation would be monitored. Moderation in global commodity prices augurs well for the medium-term outlook even as arrival of the seasonal harvest and favourable base could support further moderation but the impact of unseasonal rains on standing crop and production needs to be seen. Union Budget reinforced governments commitment towards public capex thrust as a preferred path to kickstart economic revival post the pandemic.

In the near term, ongoing earnings season, state elections, inflation trajectory & key global central bank monetary policy actions, geopolitical tensions, currency and commodity price movement, global bond yields and direction of institutional flows would be eyed.   

In the backdrop of prolonged geopolitical tensions, high and sticky core inflation, tight monetary policy stance of major global central banks and the associated risks to economic growth projections, our broad approach remains stock specific with preference for companies that can navigate this turbulent macro environment with ability to maintain margins backed by a healthy balance sheet. Market corrections can provide opportunities to accumulate quality stocks. Moderating commodity and crude oil prices and relatively strong government tax revenue growth are positives. However, emerging tight liquidity conditions needs to be monitored. RBI could now actively manage liquidity in order to not negatively hurt domestic economic growth conditions which could lead to relatively volatile yields at the shorter end of the yield curve.

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