Inflation, Q4 results, global cues among factors to drive markets

This week, markets would react to the Karnataka election outcome and India’s inflation data that got released over the weekend. Some key events that will be eyed this week are India’s WPI inflation, import-export and banking fortnightly loan growth data. On the global economic front, the market would track China’s Industrial production, US retail sales, Europe CPI data and the GDP of Europe and Japan. Powell’s speech towards the end of the week would also hold importance as it would provide direction for the Fed’s future course of action.

Overall, Nifty is gaining strength and gradually moving to a higher zone supported by healthy Q4 corporate earnings, FII buying and strong domestic macros, with the downside looking limited. Overall, it is suggested to remain with the buy-on decline strategy with greater action likely to be seen in the broader market.

Last week, Nifty continued its uptrend for the third consecutive week with gains of 246 points (+1.4%) and closed at 18315 levels. Even the broader market witnessed similar gains of around 1%. Sectorially it was a mixed bag with auto (+4%) and banking/financials (+2.5%) being the biggest gainer followed by FMCG, realty, and IT.

On the domestic front, India’s April CPI data came in at an 18-month low of 4.7% and would support market sentiments on Monday. Continued earnings momentum in banking stocks and sustained credit growth at 15.9% led to a rally in Nifty Bank. Capital goods stocks rallied to record highs on the back of better-than-expected results and healthy order inflow. Auto companies rallied post strong earnings from Eicher Motors.

Q4 Corporate earnings have been healthy and in line so far. Profits of 26 Nifty companies that had declared results till 4th May 2023 have risen by 10% YoY (v/our est. +7%). The growth is being led by BFSI, auto, tech and O&G, while metals, healthcare, and telecom recorded a YoY earnings decline.

FIIs continued their buying spree for the second week in a row, thus providing support to the market.

However, global cues were mixed last week. While US inflation eased to 4.9% and jobs data came in strong, China reported weak import-export and manufacturing PMI data which raised concerns over global demand. This led to a 1.8% fall in the metal index.

(The writer heads retail research at Motilal Oswal Financial Services Limited)