Global and local macro data, policy meetings to drive markets this week

With the earnings season ending, the market focus will likely shift to global as well as local macro events this week. Investors will look out for the OPEC meeting outcome held on Sunday. This week would be important for the domestic market, as RBI will hold its bi-monthly policy meeting. RBI was the first central bank to take a pause in the rate hike cycle and its commentary would be important considering the US Fed’s upcoming policy meeting next week on June 13-14. Other macro data that would be tracked during the week would be the Service PMI data for US, Europe, UK, and India, and Japan’s Q1 GDP.

While the markets may remain consolidative in the near term, investors are likely to see greater action in select mid/small caps. The overall market structure remains positive on the back of easing inflation, stronger-than-expected economic growth, and fast-paced expansion of India’s factory output which has helped improve investor confidence.

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Last week, Nifty witnessed some selling pressure at higher levels, on account of weak global cues and profit booking at higher levels. The index managed to close with marginal gains of 46 points at 18,534 levels supported by domestic macros and consistent FII buying. Overall they bought Rs 7,179 crore last week. However, DIIs sold Rs 1,625 crore worth of equities. Broader markets outperformed with midcap touching new lifetime highs during the week. Both Nifty midcap 100 and smallcap 100 closed with gains of 1.6 per cent and 3.1 per cent, respectively.

India’s macros continued to show improvement with GDP growing at 7.2 per cent in FY23. In Q4 FY23, GDP grew at 6.1 per cent compared to 4.4 per cent in Q3. India’s manufacturing PMI too touched a 31-month high to 58.7 in May led by strong demand and a surge in output. The monthly GST collection grew 12 per cent to Rs 1.57 lakh crore in May. GST revenues have remained above Rs 1.4 lakh crore for the 14th consecutive month, while it crossed the Rs 1.5 lakh core for the 5th time.

Amid a challenging global macro backdrop, corporate earnings have been impressive. Profitability remained healthy in 4Q FY23 – in line with expectations. Earnings of the MOFSL Coverage Universe jumped to a four-quarter high of 15 per cent Year over Year (estimate of +14 per cent YoY) in 4Q FY23, while Nifty’s earnings growth stood at 16 per cent YoY (estimate of +14 per cent YoY). Financials and auto drove corporate earnings, while metals dragged aggregate profitability.

Nifty ended FY23 with an 11 per cent EPS growth on a high base of 34 per cent growth in FY22. With healthy macros, range-bound oil prices, a robust fiscal balance sheet, and moderating inflation, the backdrop for the market is quite optimistic. The Nifty EPS is expected to grow 20 per cent in FY24 to Rs 972 led by BFSI, Oil & Gas, Metals, and Automobiles – these four sectors are likely to contribute 82 per cent of the incremental earnings to Nifty.

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