Markets in April: Experts delineate the key trends, and the strategies that investors should follow

The Indian indices closed flat in March after a highly volatile month filled with major market-moving events. The major event during the month was the banking crisis in US and Europe. Three non-major US banks have had to declare bankruptcy on account of mark-to-mark losses (amidst weak risk practices). Further, in Europe, Credit Suisse was on the verge of bankruptcy, before the Swiss government arranged a takeover by UBS.

The US Fed also hiked the rate by 25 bps as expected and other central banks followed. Swiss National Bank also raised rates by 50 bps while the Bank of England by 25 bps. Central Banks are likely to continue on the rate hike trajectory in the near future.

For the first half of the month, the market was under pressure due to the banking challenges in the US and European markets. On account of this, profit booking was visible in high-beta stocks and the majority of the sectors were in the red. However, in the second half, some of the banking challenges got reversed and sentiments revived with the buying seen in the beaten-down stocks.

The biggest gainers during the month were Commodity, Metals, and Energy sectors while the profit booking was highest in the IT and Auto sectors.

Key trends going ahead

From the upcoming RBI policy to the earnings seasons. Let's take a look at what trends one should look out for in April.

RBI Policy: In the RBI Monetary policy decision, due on April 6, most experts expect a 25-basis points rate hike. In a recent note, Sunil Damania, Chief Investment officer, MarketsMojo said that market participants are keeping a close eye on the cues given by the Governor regarding future rate hike scenarios. This is because India's retail inflation rate was 6.4 percent in February, slightly lower than January's rate of 6.5 percent, but still higher than the RBI comfort band of 2-4 percent. The RBI now faces the challenging decision of prioritizing either economic growth or inflation control, as it seems improbable that both objectives can be accomplished concurrently, he added.

Fourth quarter earnings: In a note, Axis Securities said that it believes the upcoming earnings season will drive the market direction moving forward and hence Q4FY23 earnings remain critical at this juncture. Corporate commentaries on the FY24 demand outlook and the margin recovery will be keenly watched by the street, it added.

"Banks' perspectives on Net Interest Margins (NIM) and Non-Performing Assets (NPA), along with India Inc's profits and the impact of interest costs, will significantly influence market sentiment. This will also give us an idea whether private capex could make a comeback," further stated Damania of MarketsMojo.

El Niño Developments: Damania also pointed out that in the coming weeks, an update on El Niño conditions will be available, potentially affecting agricultural production and the economy. Unseasonal rain has impacted the Rabi crop, and in April, a thorough evaluation will reveal the extent of the damage.

Global Banking Sector Turmoil: In light of recent global events, such as the collapse of Silicon Valley Bank and Signature Bank, which caused indices to drop and Bank Nifty to fall by 6 percent, and the concerns around Credit Suisse that ultimately led to its takeover by UBS, financial stability risks amid banking sector turmoil and monetary tightening have become a focus for market analysts, further mentioned Damania. Any new development is likely to make an impact on the sentiments, he added.

India's Economic Indicators: India's merchandise exports dropped 8.8 percent to $33.88 billion in February due to weak global demand, while rural India saw faster FMCG product demand growth compared to urban areas. However, sustainability remains uncertain due to unseasonal rain impacting agricultural output, Damania said.

In conclusion, market participants should closely monitor these factors to navigate the financial landscape and make informed decisions in the coming months. The market is anticipated to exhibit volatility as a result of news-driven fluctuations; however, the downside potential appears to be capped.

Outlook and Strategy

Domestic brokerage house Kotak believes that amidst the risk of global slowdown, its lagged impact on India, falling input costs – an opportunity for margin expansion, healthier CAD/GDP, it prefers companies with diversified revenue mix and strong cash flows. Indian corporate’s leverage is in a better shape in recent years and the impact of slower growth is unlikely to have a material impact on banking asset quality stress.

Its top picks for April include Britannia, Cummins, ICICI Bank, Infosys, M&M, RIL, Sun Pharma and Tata Steel.

Going ahead it cautioned that a Hard landing in the US could lead to a higher risk of contagion of recession and a longer impact of a slowdown in India. Also, higher interest rate hikes by the RBI to control CPI in India, despite some aspects of CPI especially core inflation being structural, could adversely impact growth, added Kotak.

Meanwhile, Axis Sec noted that the Indian economy stands at a sweet spot of growth and remains the land of stability against the backdrop of a volatile global economy. It continues to believe in the long-term growth story of the Indian equity market, supported by the emerging favorable structure as increasing Capex enables banks to improve credit growth.

"While the medium to long-term outlook for the overall market remains positive, we may see volatility in the short run with the market responding in either direction. Keeping this in view, the current setup is a ‘Buy on Dips’ market. We recommend investors to maintain good liquidity (10 percent) to use such dips in a phased manner and build a position in high-quality companies (where the earnings visibility is quite high) with an investment horizon of 12-18 months," it suggested investors.

Harshad Patil, CIO, Tata AIA Life also expects heightened market volatility in the short term but strongly believes that the Indian economy remains resilient despite global headwinds. Moreover, the fundamentals, as seen from the earnings of the Indian corporates, will remain robust in the medium term.

“New investors should invest as early as possible and stay invested by averaging out the market volatility to benefit from long-term compounding of returns. The asset allocation should be in line with their risk appetite, which will help them navigate the market volatility smoothly. New investors may prefer to invest through institutional houses that study market dynamics on an ongoing basis and optimise long-term returns for their investors,” he advised.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services also believes that this is the right time to build a portfolio. Investors need to expect only modest returns in CY2023. But, beyond 2023, returns will turn attractive. A 60-40 allocation for equity and debt will be ideal for now for long-term investors, he said.