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The domestic equity market ended the month of May on a negative note as concerns over inflation, slowing growth, geopolitical tensions and anticipation of aggressive rate hikes kept investors on tenterhooks.

Sensex slipped 2.62 percent in May while the Nifty50 fell 3.03 percent. Mid and smallcaps suffered more as the Nifty Midcap 100 index fell 5.33 percent while the Nifty Smallcap 100 plunged 10.22 percent.

Among the sectoral indices, Nifty Metal cracked as much as 15.72 percent, followed by Nifty Realty which declined 7.22 percent. Nifty PSU Bank (down 6.63 percent), Nifty Pharma (down 6.38 percent), and Nifty IT (down 6.15 percent) indices fell more than 5 percent each in May.

Only two indices, Nifty Auto (up 4.59 percent) and Nifty FMCG (up 1.33 percent) could manage to end the month with gains.

As per data available with NSDL, foreign portfolio investors (FPIs) sold off Indian equities worth ₹39,993 crore in May. Overall, FPIs took out ₹36,518 crore from the Indian financial market - which includes debt, equities, hybrid and debt-VRR - in May.

The market had many headwinds in May and many of them such as geopolitical tensions concerns over growth and rate hikes still persist. Uninspiring March-quarter earnings also weighed on sentiment.

"Earnings have disappointed in cement, industrials and FMCG on a broad basis. Individual stocks though in various sectors have exhibited margin pressure. It is the outlook for earnings growth in the current year (FY22-23) though, which is uninspiring for many sectors, and a concern. The earnings growth in FY22-23 and FY23-24 could moderate to a range of 10-12%, with the higher base of FY21-22 and a likely difficulty in the ability of corporates to pass on their higher costs (unless demand picks up strongly)," said Shyamsunder Bhat, CIO at Exide Life Insurance.

The upcoming US FOMC meeting and RBI MPC meet in June and updates on the Ukraine war will dictate the trends of the market in the near term. The correction has cooled off the valuation of many stocks and since most negatives are on the table for the market, analysts advise investors pick stocks at cheaper valuations.

“With clarity now arising from last week's US FOMC meeting about another 50 bps rate hike in the next few months, the market seems to be taking in its stride the future rate hikes and is now seen reversing the bearish trend. While fears of global recession and a further rise in oil prices lurk, investors are currently engaged in buying after the recent free fall," Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities, observed.

While the short term outlook of the market is hazy, long term investors should focus on fundamentals and pick quality stocks on dips, says experts.

"While in the short-term markets can be influenced by sentiment, in the long-term they are driven by fundamentals. Thus, if one is looking to create robust long-term portfolios then instead of trying to assess the market mood or identify the right time to enter the market, one must focus on finding good companies that are available at a discount to their fair value," said Mrinal Singh, CEO &amp; CIO of InCred Asset Management.

Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.

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<ul><li>Only two indices, Nifty Auto (up 4.59 percent) and Nifty FMCG (up 1.33 percent) could manage to end the month with gains.</li></ul>

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