Markets in August: Nifty down 2.5% after 5 months of gains as most sectors decline

Indian indices snapped 5 straight months of gains to end on a weaker note in August. Both the benchmark indices Nifty and Sensex ended 2.5 percent lower each in August after surging over 11 percent between March and July. The decline in the previous month was on the back of ebbing foreign investor inflows, a rise in crude oil prices, a jump in US bond yields, resurfacing inflationary fears and overall poor sentiment in global peers.

The Indian markets also witnessed some consolidation in August due to high valuations and profit booking after hitting new peaks in July.

In the last session of August, the Sensex ended 255.84 points or 0.39 percent lower at 64,831.41 points with 22 of its constituents ending in the red. Meanwhile, the broader Nifty of NSE also shed 93.65 points or 0.48 percent to settle at 19,253.80 with 35 of its stocks ending in the red.

"Headwinds stronger than tailwinds have pushed the Nifty down by 406 points in August. Some headwinds like weakening monsoons and sluggish global growth are likely to weigh on markets. And now there is another headwind coming from the Brent crude rising to $87. FPI flows in the cash market turned negative in August after strong positive flows in the previous three months. These headwinds will constrain a sustained recovery in markets," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

He further noted that August has been weak for global equity markets. In the mother market of the US, the S&P 500 is down by 4 percent in August. This weakness has impacted all other markets including the Indian market. The high US bond yields and the dollar index above 104 are near-term negatives for capital flows to emerging markets like India, he added.

Banks, financial services, oil & gas, metal and FMCG sectors emerged as top losers in August, dragging the overall market performance. However, mid- and small-cap indices outperformed, indicating continued investor interest in these segments. The midcap and smallcap indices rose 4 percent and 5 percent, respectively.

Sectors

Most sectors were in the red in the month of August. Nifty Oil & Gas was the top dragger, down 5 percent, followed by Nifty Bank and Nifty Financial Services which shed 3.6 percent each. Meanwhile, Nifty PSU lost 3.3 percent and Nifty FMCG, Metal and Realty declined between 1.5 and 3 percent each.

However, Nifty Media emerged as the top performer of the month, surging over 11 percent, followed by Nifty IT, up over 4 percent and Nifty Pharma, gaining 0.7 percent during the month.

Stocks

Among stocks, 35 of 50 or 70 percent of Nifty50 constituents gave negative returns for the month whereas only 15 were in the green.

BPCL shed the most, almost 10 percent, followed by SBI, down 9.5 percent; Hero Moto, down 9 percent; and PowerGrid, down 8 percent. Meanwhile, Britannia, Apollo Hospitals, Tata Motors, Bajaj Finserv, Bajaj Auto, ITC, Reliance Industries, UPL, and Kotak Mahindra Bank also lost between 5 and 7 percent. Other constituents, HDFC Bank, JSW Steel, ICICI Bank, Bharti Airtel, Asian Paints, Grasim, Adani Enterprises, and Tata Consumer Products also declined over 3 percent each in August.

On the other hand, IT stocks ruled the month. Tech Mahindra was the top gainer in August, jumping 7.7 percent, followed by Cipla, up 7 percent. Meanwhile, M&M, LTI Mindtree, Infosys, and HCL Tech also advanced between 5 and 7 percent each. Titan, SBI Life, and Axis Bank also added over 2 percent each in August.

Outlook and Strategy

"The declining bond yields in the US have turned the global market construct favourable for equities. But this is unlikely to create a highly favourable environment in the Indian market since the poor monsoon is becoming a major worry. Unless the rains revive soon, the economy and markets will come under a cloud. It is important to remember that the RBI’s projection of FY24 inflation at 5.4 percent is based on a normal monsoon. Presently, the probability of a deficient monsoon is high. This will impact GDP growth and keep inflation elevated. The impact on the FMCG sector will be high. Investors may consider tweaking their portfolio with higher weightage for more inflation-proof segments like pharmaceuticals and export-oriented sectors like IT," suggested VK Vijayakumar.

He further advised that long-term investors can utilise weakness in the market to buy high-quality stocks in banking, capital goods and automobiles. The rally in the mid-and small-cap segment is turning unhealthy with the participation of many low-grade stocks. This trend is unlikely to last long, he added.

He also pointed out that relatively high valuations in India are constraining a strong rally. Of late, the poor monsoon this year, till now, is also emerging as a major worry. In the near term, market may remain steady on favourable global cues, Vijayakumar predicted.

The declining dollar is favourable for gold. Capital goods is a strong segment in the market now. A matter of concern is the poor quality of stocks participating in the mid-and small-cap rally, cautioned the expert.

Meanwhile, Hemang Kapasi, Head of Equities, Sanctum Wealth, stated that the Nifty has clocked a decent return in the year so far. However, there seems to be fatigue in heavyweight sectors like Oil & Gas and BFSI, and a lack of tailwinds in IT, which is being made up by good performance in low-weight sectors like Auto and Healthcare. The returns, however, now look front-ended given the superlative profit growth in the last quarter which was led by margin expansion rather than topline growth.

“We are entering a volatile phase and current momentum in the market could derail due to a deficit in monsoon which could further impact the demand recovery in the second half of the year and because of multiple state elections being lined up towards the last couple of months in 2023,” he warned.

Pradeep Gupta, Co-founder & Vice Chairman, Anand Rathi Group, believes that at present, the results and market positioning are the key for short-term rally, however, the perception of extraordinary return from the market is not necessarily valid. Given the strong macroeconomic and corporate fundamentals and buoyant domestic and foreign money flows into the Indian equity market, the medium to longer-term perspective of the Indian equity market looks bright although some level of correction in the near term cannot be ruled out, he added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.