An unfavourable interest rate environment combined with higher inflation is expected to crimp global growth; however, analysts predict that the Indian stock market will continue to outperform.
The Sensex and Nifty in India are down more than 6% year to date since Dussehra last year. Both equity indices have suffered losses for the first time since 2011. Dusshera will be celebrated on October 5 this year.
During the same time period, foreign investors sold approximately $27.78 billion in local equities, while domestic institutional investors purchased Rs 3.17 trillion in shares.
The markets fell as a result of weak global cues, a depreciating rupee, and aggressive selling by foreign institutional investors (FIIs) prompted by the US Federal Reserve's liquidity squeezing policy.
Global equity markets have also suffered significant losses this year, owing to a hawkish Fed attempting to contain rising prices. Furthermore, the Russia-Ukraine conflict has disrupted supply chains, contributing to elevated inflation.
To combat inflation, the Reserve Bank of India (RBI) raised its policy rate by 50 basis points for the third time. Many brokerages and rating agencies have reduced India's growth target as a result. The RBI recently reduced India's GDP growth forecast to 7% from 7.2 percent previously.
Despite these headwinds, analysts believe Indian markets will continue to outperform global peers, owing to the country's consistent improvement in macroeconomic data.
Healthy goods and services tax (GST) collections, higher-than-expected auto sales, a surge in credit growth, and an above-average monsoon all contribute to India being more appealing than other emerging economies. This, combined with continued foreign investor purchases and falling crude and commodity prices, has improved sentiment.
According to Reliance Securities analyst Mitul Shah, the Nifty target for FY23 is 19,000 points at 20 times estimated FY24 earnings.
“We expect a strong economic rebound, normalised commodity prices, inflation within the targeted range and better visibility in the second half of FY23, which would transform Nifty valuations to close to the historical average. We expect FII inflows to continue and equities would continue with the outperformance with double-digit returns. We prefer sectors like automobiles, capital goods and consumer, which are likely to be in focus going ahead,” Shah said.
Between the previous Dussehra and now, the BSE Power, BSE Capital Goods, BSE Auto, and BSE FMCG indices have been the only gainers, rising between 5 and 15%, while other sectoral indices have fallen.
The BSE Realty and IT indices were the biggest losers, falling 21% each, followed by the BSE Metal and Healthcare indices, which fell 15% and 11%, respectively. Other indices, such as the BSE Energy, Oil & Gas, Consumer Discretionary, Consumer Durables, and Bankex, fell between 1 and 8%. During this time, the BSE MidCap and SmallCap fell 7% and 4.3 percent, respectively.
Analysts believe that markets should take cues from developments on these fronts as well as any new emerging triggers in the future.