The Indian market saw a spectacular firework of rallying stocks starting in the month of April 2023 with the Nifty50 closing the month with over 4% gain alongside BSE Sensex. The momentum continued to ferry in the month of May '23 as well as Nifty50 so far has managed not to breach the 18,000 mark. Also, both Nifty Smallcap 100 and Nifty Midcap 100 have rallied 5.1% and 4.56%, respectively, in the last one month and outperformed large-cap stocks while the Sensex stayed up with 2.86% gain.
The stocks rallied like a spring bird from their lows over the last few months with the positive news of fantastic fourth quarter (Q4) corporate earnings and the RBI pausing to “No” interest rate hike in the last meet without major global market triggers.
Though, currently the markets overall look stable with no surprising knee-jerk possibility, especially with the small & mid-cap indices performing better over the market indices, a positive build-up is indicated and we are positioned affirmatively, a little caution should not be negated since the markets have run up a lot and may stay put for a healthy correction.
All sectors look positive for medium to long term except for the IT sector which might underperform for some time. The idea is to wait for a little correction for fresh buying in all other sectors.
Bank Nifty has sprinted significantly and that too in much shorter duration recently and is very close to the all-time high; it appears that it might consolidate for next couple of months to digest the gains while the other sectors rally. Even if we cross the all-time high, it is likely that it will consolidate around that level or correct for another 2-3% to digest the game.
Global markets look little more stable as compared to four months back; NASDAQ has given a breakout - if that gets supportive then Indian markets will just consolidate at current levels here to digest the game but as of now, the global cues are supportive. If they start a little correction, we might as well see some impact and follow corrective path.
As we have recently seen that the Indian retail inflation plunged back to 4.7% in April and is expected to go little under 4% in the month of May, we expect a rate cut rather than a pause or an increase from the RBI going ahead. With overwhelming Q4 earnings data coming in for many companies, we anticipate lowering interest rate could help unwind profitability knots overall for many other firms.
The Indian banking system has done the cleaning part in the last few years and the balance sheets look much much better today. The public sector banks (PSU banks) have reduced the non-performing assets (NPAs) drastically and we believe that this might be the beginning of an upcycle. The government has strongly improved the Indian banking systems with key digital transformation projects including technological improvements. We do not anticipate any bubbles in the path of future growth here.
Foreign institutional investors (FIIs) have sold heavily for brief periods of times in the last couple of years. But even then, the Indian market was impacted 2-3%, because of active participation of the domestic buying. We believe in staying invested and holding even if they turn sellers for shorter periods. And if they turn positive, we ride the time with them.
Gaurav Verma is a smallcase manager and Director and Co-founder of 21G Investment Advisers.