Indian indices gained for the fourth straight month in June, with the benchmark Nifty rising 3.5 percent on the back of continued foreign investor inflows, improving macroeconomic data and positive global trends. The month witnessed the benchmarks, broader markets and many other sectoral indices hitting new highs.
According to experts, positive economic surprises in the global market and the progress of the southwest monsoon provided a much-needed boost, enabling the domestic market to achieve new highs with renewed vigour. The market's upward momentum was further supported by strong inflows from FIIs, the merger update of HDFC, and a narrowing current account deficit. Globally, investor confidence was uplifted by favourable revisions in US Q1 GDP, a decline in jobless claims, and positive outcomes from the US bank stress test conducted by the Fed.
Realty, pharma, and auto sectors emerged as top performers last month, making significant contributions toward overall market performance. Also, mid- and small-cap stocks recovered, indicating a regained investor interest in these segments. The midcap and smallcap indices outperformed the benchmark in June, rising 5.9 percent and 6.6 percent, respectively.
Sectors
All sectors were in the green in the month of June.
Nifty Realty and Nifty Pharma were the top-performing sectors in June, rallying around 8.5 percent each. It was followed by Nifty Auto and Nifty Metal, which rose 6.7 percent and 5.4 percent, respectively. Meanwhile, Nifty IT, Nifty Bank, Nifty FMCG, and Nifty Fin Services also added between 0.8 and 3 percent.
Pharma companies have been on an up-move, witnessing a recent recovery. This is because pharma companies are now improving their geographical mix and focusing on shifting from the US to the rest of the world. India is the next margin accretive market for the companies and all pharma companies have taken it to their stride to increase domestic business.
Meanwhile, metal space has been driven by rising demand for affordable housing, infrastructure development, construction/real estate projects and improving manufacturing activities, which has increased the demand for domestic steel. In line with the rising steel demand, the government is targeting 300 million tons of annual steel production by FY30 (from 126 million tons produced in FY23), which is also a positive for the space.
Sectors to watch out for
Ajit Banerjee, CIO of Shriram Life Insurance Company
Domestic facing sectors hold more promise than global ones currently given the strong growth in India and the fact that the battle on inflation is largely behind us. The capex cycle has also begun. Initially it was led by the central government and now state governments are also joining the game and corporates are also following suit. The measures taken by the government like Income Tax incentive, followed by PLI schemes, defence offset clause, emphasis on green energy projects and emphasis on establishing India as an alternate destination for China plus strategy have led to strong capex-driven growth to come. With the economy set to grow as the fastest-growing economy in the world for the next few years, the financial sector is also expected to grow at a fast pace and should outperform in the next few years aided by strong balance sheets.
Anil Rego, Founder and CEO of Right Horizons
Corporate earnings continued to be driven by financials and auto. FMCG and infrastructure added to the momentum while metals, chemicals, and power dragged.
The banking space is witnessing robust credit growth momentum, autos are in upcycle with stable demand in case of CVs and the traction in the EV trend, and the paints segment in the consumer space and building materials segment are witnessing healthy demand due to focus on infrastructure.
Outlook
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services believes that the ongoing rally in the market has made valuations very rich. Nifty is trading at above 20 times the estimated FY24 earnings. This is higher than the historical average. Momentum can take the market higher, but at high valuations, risk is high. Some presently unknown negative developments can trigger a sharp correction. So, even while remaining invested in the market, investors have to be cautious, he advised.
He also noted that the outlook for the Indian economy is improving. India has the best growth-inflation balance among the large economies of the world: growth is resilient and inflation is falling. Leading indicators like GST collections, private capex, credit growth and PMI indicate the growth momentum to sustain. However, there is no room for exuberance. Globally growth is low and there is a possibility of the US economy slowing down in H2 of CY 2023. This can impact India’s exports and thereby India’s growth, too, he added.
Shantanu Bhargava, Managing Director, Head of Discretionary Investment Services, Waterfield Advisors.
“Due to robust profit growth potential and increased demand from domestic and global investors, Indian shares remain appealing despite high relative valuations. The premium over the historical average implies increased optimism about medium-term growth. Markets will be impacted in the near term by events such as the Fed's monetary policy stance, corporate earnings, and election results. However, the markets' vulnerability to foreign flows would be much lower, at least in the medium run. If a correction occurred because of foreign outflow - that could be an opportunity to invest in an otherwise extremely good underlying narrative.”
