Improved macros, the return of FPIs, and a strong rally in the banking and auto stocks have propelled Indian markets to trade near all-time highs. The Sensex returned 5.78% in October, marking the second-largest monthly gain after August, while the Nifty50 generated a return of 5.37% in the same period. Benchmark indices are currently trading just 2.40% below their all-time highs reached on October 2021.
Nifty and Sensex are nearing all-time highs, with gains led by banking and auto stocks
After FPIs made a U-turn in July by investing nearly ₹5,600 crore, the Nifty rallied 8.60% and the Sensex gained 8.56%. In addition to that, the Indian market outperformed most of its global peers in the same month. July stands as one of the best months for the markets.
Even the significant increase in crude oil prices in October and the ongoing rate hikes by the US Federal Reserve had shown no adverse effects on the Indian equity markets, which even performed well in comparison to their international counterparts.
Foreign Investors Return
FPIs made a strong comeback in the first week of November after withdrawing funds in October and September. In the first week of November, FPIs infused nearly ₹15,280 crore in Indian equities on expectations that the US Fed may be less aggressive on rate hikes soon. In October, FPIs withdrew just ₹8 crore, and in September, the outflows stood at ₹7,624 crore. FPIs were sellers in October initially, but the sell-off had slowed drastically on the back of some improvement in sentiment in the global markets.
In July, FPIs turned net buyers after nine straight months of massive net outflows, which started in October last year. Between October 2021 and June 2022, they sold a massive ₹2.46 lakh crore in the Indian equity markets, according to media reports.
After FPIs made a U-turn in July by investing nearly ₹5,600 crore, the Nifty rallied 8.60% and the Sensex gained 8.56%. In addition to that, the Indian market outperformed most of its global peers in the same month. July stands as one of the best months for the markets since August 2021 and November 2020, respectively.
Similarly, the Nifty delivered a 3.50% return and the Sensex gained 3.42% in August after FPIs infused nearly ₹51,000 crore.
The dollar index dropped almost 0.51% in October, and it has lost nearly 0.44% so far in November, continuing its downward trend. While trading at 111, it was down from its weekly peak of over 113.
The banking, auto, FMCG, and metals sectors provided significant support for the Nifty 50 index. Over the last two quarters, most banks have reported improved performance as a result of the acceleration in credit growth.
The RBI Story
Despite ongoing rate hikes from the Reserve Bank of India, which has lifted interest rates by 190 basis points so far in 2022, the credit growth of commercial banks has remained strong, growing by 16.28% in the fortnight that ended on September 23, thanks in part to increases in personal loans, mortgage loans, and corporate loans.
Margins of commercial banks have recently improved as they quickly raised lending rates in line with RBI rate hikes but went slowly on deposit rates, resulting in a rise in margin spreads as interest income from loans and investments rises faster than interest expense paid to depositors.
According to the report by the Financial Express, for the first time since FY08, the government is unlikely to infuse capital into state-run banks this fiscal year as public sector banks reported good numbers in FY22.
The majority of the banking stocks in the Nifty 50 index reached 52-week highs, and some even touched all-time highs. The State Bank of India stood at the top of the list with a return of over 28% in the last six months, followed by the ICICI Bank and Axis Bank with returns of over 25% and 22.3%, respectively.
During Monday's trading session, shares of SBI hit an all-time high of ₹622.90 on the BSE after the company reported its highest-ever net profit for the September-ending quarter. The bank posted a standalone net profit of ₹13,265 crore, up 73.93% year-on-year (YoY).
The net interest income (NII) for Q2FY23 increased by 12.83% YoY, while the net interest margin (NIM) for Q2FY23 increased by 5 (bps) YoY to 3.55%.
Similarly, ICICI Bank exceeded analysts' expectations with its strong performance in Q2 FY23. On October 22, the country's second-largest private-sector lender posted a 37% YoY jump in its standalone net profit to ₹7,557 crore in Q2 as against ₹5,511 crore during the same quarter of the previous fiscal.
Likewise, the third largest private sector lender, Axis Bank, reported a 70% jump in its standalone net profit for the September quarter to ₹5,329.77 crore.
Axis Bank stock reached an all-time high of ₹920 on October 27. From a low of ₹716 at the September end the stock rallied 21% to date.
On the other hand, IndusInd Bank posted a 60.5 per cent rise in its standalone net profit to ₹1,786.72 crore from ₹1,113.53 crore. Total income was up at ₹10,718.85 crore from ₹9,491.15 crore during the quarter.
Besides, global brokerage house Morgan Stanley said that India is set to become the world’s third-largest economy by 2030 and will drive nearly 20 per cent or one-fifth of the world’s growth as it sees current global trends benefiting the local economy.
It expects the country's GDP to surpass $7.5 trillion, more than double the current levels, by 2031, adding around $500 billion per year on an incremental basis in the next decade.
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