Monthly market update & outlook – October’22

October was a great month not because of the Diwali festivities or BSE Sensex climbing more than 7% & ending over the 60,000 mark but more so because of foreign portfolio investors (‘FPI’) returning to the Indian markets.

Several economic indicators point to healthy growth in the Indian economy:

• Central Govt. net tax revenue growth stood strong at 9.9% YoY;
• GST collections rose 17% YoY to 1.52tn in Oct-22 v/s 1.48tn in Sept-22;
• Manufacturing PMI came in at 55.3 for Oct-22 v/s 55.1 in Sept-22, reflecting an increase in employment, stocks of purchase, and improved demand;
• October Services PMI rose to 55.1 v/s 54.3 last month indicating a recovery in some of the growth momentum lost in the last month;
• Credit growth accelerated to 16.75% YoY;
• India’s commercial vehicles registered strong growth, accelerating at 35.2% YoY;

However, there are indicators adversely affected by international events:

• The INR has depreciated close to 10% against the US$ in 2022. In October itself, INR depreciated by 1.73%;
• Trade Deficit stood at -$27.09 Bn;
• India’s foreign exchange reserves continue to fall ($531bn) as policymakers mitigate the transmission of global volatility/ tightness to India;
• CPI inflation rose for the second month in a row, rising to 7.4% in September.

Equities:

• The large-cap segment was the top gainer, followed by small-caps and mid-caps in the domestic market. Whereas the banks, industrials, and technology were the top performing sectors during the month;
• The US market saw an uptick because of investors buying, stronger than anticipated growth data, and positive corporate earnings.

Debt:

• Yields continued to ascend higher due to tight liquidity conditions and a rise in bond yields globally;
• India’s 10-yr GSec bond yield (7.45%) to US 10-yr Govt. bond yield (4.1%) spread is at a 14-yr low led by rising US rates. A lower differential could reduce foreign capital flows into India which could further pressure INR.

Outlook:

• The data from the derivative side is encouraging with rollover indicating long positions.
• Overall, the last two months of 2022 look promising for investors and there is a high probability that volatility will remain on the lower side if we go by the India VIX readings.
• Key enabling factors for long-term growth are expected to arise from

1. Policy initiatives being taken by the government to boost manufacturing, infrastructure, and corporate profits so as to drive investment growth and job creation;
   and corporate profits so as to drive investment growth and job creation;
2. Diversification of global supply chains creating opportunities for exports of  goods and increased offshoring of services to India;
   goods and increased offshoring of services to India;
3. Energy transition towards renewables supported by conducive policy measures

This is the time to stay put and learn the meaning that equity investing is akin to a roller coaster ride. Buckle up and enjoy the ride.