Economic recovery, govt capex focus to help markets in FY23

Equity markets had a strong week, supported by a decline in oil prices, de-escalation in the ongoing Russia-Ukraine conflict, and FIIs finally turning net buyers. Bulls are now showing a lot of strength with Nifty closing above key hurdles and at the highest level in 10 weeks.

Nifty/Sensex gained 517 and 1,914 points respectively, up over 3 per cent each to close at 17,670/59,277. Midcap100/Small100 mirrored the benchmark and were up 3 per cent each during the week.

Barring metals, pharma and IT which ended flat, all other sectors extended handsome gains during the week. Realty, banking and financial services gained more than 5 per cent amid positive outlook for the sector.

Media, FMCG, infra and energy gained 2-4 per cent each during the week. Even the Volatility index, India VIX cooled off sharply by 21 per cent during the week to 18.4 levels, providing the much needed stability to the market.

Global markets were mixed as investors remain cautious over the economic growth and inflation, and Europe facing a deadline to start paying for Russian gas in Roubles. Also, weak macro data globally dampened the investor’s sentiments further.

China’s factory activity slumped in March, after resurgence of Covid and sharp falls in production and demand, triggered by the Ukraine war. The Markit PMI fell to 48.1 in March, indicating the steepest rate of contraction since February 2020, from 50.4 in the previous month. Oil prices have stabilised after the US ordered a massive release of crude from strategic reserves to combat soaring rampant prices.

Markets on Monday will react to Nonfarm payrolls data for March and Key Eurozone inflation data that is set to be released on Friday. Back home, RBI’s policy meet would be the key event to watch out for and would keep the Banking stocks in limelight.

Investors will also monitor fresh negotiations aimed at ending the war. However, foreign institutional investors (FII) turning into net Buyers and a steep decline in volatility are providing support to bulls. Market breadth is also turning favourable, indicating broad-based action.

After a long stretch of underperformance – attractive valuations and hopes of a resolution of war are creating interest in sectors like media, realty, financials, auto and private bank.

Domestic equities ended FY22 on a high with Nifty gaining 19 per cent despite several global challenges. The broader market continued to outperform with Nifty Midcap 100 up 25.3 per cent and Nifty Smallcap 100 up 28.6 per cent.

Commodity-driven sectors like metals, oil & gas along with IT were top gainers, while FMCG, autos, and BFSI underperformed. Given lot of global developments, we expect market volatility to remain high in the near term.

However economic recovery coupled with government focus on Capex and domestic manufacturing would drive overall growth in FY23. We are positive on IT, select BFSI, commodities, retail, real estate, defence and telecom for FY23.

Also one can consider FMCG, autos and Cement as contra plays and accumulate them gradually for long term.

(The writer is Head-Retail Research at MOFSL)

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