Investment Shastra
July 2023 Stock Market Outlook

July 2023 Stock Market Outlook

During the month of June, the Indian stock market witnessed a surge. This momentum pushed both the NIFTY 50 and BSE Sensex indices to scale new highs, achieving all-time high levels.

As we write this note in July, Sensex has given 3.67% returns in the month of June 23 and 22.32% over the last one year. The major contributors to this growth in the last month are the Capital Goods, Healthcare and Realty sectors. The major performing sectors in the last one year are Capital Goods, PSU and Realty.

indices and returns

Both FII and DII are buying

Despite the presence of a robust domestic macroeconomic environment, the Indian indices were unable to reach their record highs earlier due to the limited global support they received. But now FIIs are net buyers and have net purchase worth of Rs. 27250 Cr in the month of June. DIIs have also been net buyers in the last month and jumped to Rs. 4458 Cr. Both of these indicators imply more resilience in our market.

FII & DII Activity in Cash Markets

Global cues

According to forecasts, global growth is projected to decline to 2.1% in 2023, and expected to modestly recover to 2.4% in 2024. In emerging market and developing economies (excluding China), growth is estimated to drop to 2.9% in 2023, down from 4.1% in 2022, due to tight global financial conditions and subdued external demand.

Central banks are currently directing their efforts towards reducing the size of their balance sheets, although they are encountering challenges in accomplishing this objective.

Simultaneously, there is a growing concern over Russia-Ukraine war, global oil prices, and inflation. China’s retail sales are experiencing a slowdown, accompanied by contractions in both the PMI and the Producer Price Index (PPI).

inflation cpi

The inflation situation in India exhibits favourable position in comparison to its peer nations. Primarily food inflation which is one of the major contributors to CPI shows promising signs. The annual growth in the Food CPI stands at 2.91%, reflecting a positive outlook for the Indian economy.

As per Bloomberg, data suggests that India continues to remain immune from recessionary possibilities.

The global economic outlook is predominantly negative, with expectations of subdued domestic demand across most economies for the rest of the year.

Domestic cues

The Nifty 50 companies achieved a significant revenue milestone of Rs 11.11 lakh crores during this quarter. Several Nifty constituents experienced record-breaking quarters in terms of revenue and EBITDA.

total assets

Assets managed by the Indian mutual fund industry have increased from Rs. 36.98 trillion in June 2022 to Rs. 44.39 trillion in June 2023. That represents a 20% increase in assets over June 2022.

In a sluggish global environment, India has experienced prosperity by providing an opportunity for sustainable growth on a macro level. Since April 2023, the markets have witnessed a rally of over 8%, supported by a stable macroeconomic outlook and favourable crude oil prices.

Furthermore, the positive Q4 earnings results have indicated sustained demand momentum. Notably, the small and midcap indices have surpassed larger benchmarks in the current quarter, thereby contributing to the trend of reducing valuation gaps.

According to a private business survey, India’s service sector growth experienced a slight slowdown in June, reaching a three-month low. However, it remained resilient even after price hike during this period, due to robust demand.

High-frequency Indicators showing promising signs

There are minimal signs of a significant slowdown in India’s high and low-frequency indicators. 

The impact of external headwinds has lessened, and the RBI has initiated the process of rebuilding reserves while maintaining the currency at relatively stable levels. 

The Q4 GDP data of FY 2022-23 shows the Indian economy grew at an annualized rate of 6.1% which is a good sign for the economy. The GVA grew at 7.0% YoY for FY23 showing significant economic recovery.

GVA and GDP bar graph

Consumer confidence in the Indian economy is currently at an all-time high, reflecting a strong belief in its performance.

In terms of tax revenue, the GST collections in June 2023 reached to Rs 1.61 lakh crore. It has crossed the milestone of Rs. 1.6 Lakh Cr for the fourth time since the introduction of the Indirect tax regime.

trends in gst collection

India’s long-term outlook remains strong

India to be the world’s second-largest economy by 2075, Goldman Sach’s recent report stated. They expect India’s GDP to touch $52.5 trillion by 2075.

golden sach research

India appears to be in a favorable position compared to the rest of the world, both in terms of cyclical and structural factors. Healthy growth in various domestic high-frequency indicators, such as GST collections, retail spending, consumer demand, credit growth, and Purchasing Managers’ Index (PMI), indicate a significant level of economic activity. Projections suggest that India is expected to be among the fastest-growing economies in 2023. Recent policy reforms, government-led capital expenditure focus, and stronger corporate balance sheets have potentially established a robust foundation for sustained growth over multiple quarters. However, in the short term, volatility may persist until global uncertainties subside.

Nifty 50 is marginally above long-term averages

nifty pe ratio

How are we looking at this?

The recent development of the shift of manufacturing from China to more domestic production supported by the government as well as the perception of companies to diversify their supply chains bodes well for the Indian Manufacturing sector. Government thrust on capex shall support growth in the infra sector with corollary growth benefits to Financials, construction materials, and allied industries.

With the US on the verge of a Recession, Germany already in recession, and Eurozone experiencing high inflation worries, Even though domestic demand is good, there is muted demand in export due to a slowdown in developed economies. This can be seen by the ramp-downs and project delays seen in the Indian IT space. Going ahead, with a recovery in exports the economy is expected to perform better than before.

What is MoneyWorks4me’s action plan for its subscribers?

We stay on course to look at individual securities with strong future outlooks and growth. While taking a portfolio view to diversify and make the most of the rising economy.

We have given a couple of BUY calls in the past few months. The market has rallied since then. Given the strong dynamics of the economy, we are excited to BUY existing opportunities or new ones in the near future. We are tracking more companies to add in our BUY zone; however, they are still ahead of our MRP.

The deleveraged balance sheets of Indian corporates, sub-par capacity addition in the past decade, and increasing utilisation levels give us confidence on the credit cycle. This combined with the underperformance of the financial sector in the last couple of years gives us confidence on the prospects of lenders (BFSI sector).

We believe that the current economic recovery is led by the credit growth cycle which remains definitive. Also, the Indian corporate sector is in the best position to gain pricing power and balance sheet strength. We are looking at sectors that will be early beneficiaries of these two themes.

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Nirmal Chaudhari

Nirmal is a MBA finance graduate from the Department of Management Sciences at Pune (PUMBA). He currently holds the position of Investment Adviser at MoneyWorks4Me. In his free time, Nirmal enjoys reading non-fiction, listening to podcasts, and swimming.