As a result of a relief rally that followed a sell-off between December 2022 and March 2023, the market has fared better than anticipated.
Due to worries about a worldwide recession that would cause a local slowdown, the domestic market had an 11% correction. The global economy has, nevertheless, shown to be resilient and has survived the crisis.
Nifty Reached a New High
According to projections, the US economy will avoid a severe correction and a hard landing in CY2023. As FII, DII, and retail investor inflows surged, major indices entered a new zone. The short-term potential for index upside may be constrained given how well the negative risks are protected.
The valuation of the US has significantly increased to 19.2 times one year ahead, exceeding the long-term average of 17.5 times. The Fed Chair has hinted that there may be two more interest rate increases in CY23 even though the US interest rate cycle has not yet reached its apex. These increases are projected to significantly slow down economic development.
- US economy is unlikely to experience a severe correction in CY2023, despite surged investor inflows.
- Economy manages recession, Fed resolves US bank issues, AI development boosts business opportunities.
- Supply-chain issues disappear, commodity prices decline, and supply-chain volatility index negatives.
The economy is handling itself better than expected by avoiding a serious recession, the Fed is helping to resolve the situation involving US medium-sized banks, and AI development is offering new business opportunities.
The current increase has been influenced by each of these elements. However, given the weakening economy, maintaining the current historic levels would prove to be difficult.
The fastest-growing economy in India, which is trading at 18.5x over a long-term average of 17.5x, is in a stronger position. The current market volatility index implies that the market is stable and upbeat, yet looking back, this runs counter to the current market and economic developments.
Supply-chain problems have vanished, and global commodity prices have sharply declined. As demand and supply converge towards an oversupply, the global supply-chain volatility index has fallen into the negatives. A commensurate stabilization in inflationary pressures should occur in tandem with the return to normalcy in the supply chain.
With lower input prices, an improvement in corporate profits on a quarter-over-quarter basis, and a normalizing global recession, India’s profitability outlook is improving. Due to inflated valuation and an economic slowdown in H2 CY23, the negative risk for the global market may be significant.
Investments are safe in industries including pharmaceuticals, infrastructure, manufacturing, capital goods, renewable energy, fast-moving consumer goods, information technology, and small caps (stock-specific).
