‘INDIAN STOCK MARKET PERFORMS BETTER THAN GLOBAL COUNTERPARTS’: BOB REPORT

While elevated levels of inflation and growth slowdown remains a big hurdle for global equity markets which are all considerably down, sustained improvement in economic growth has helped the Indian stock market remain above water, showed a latest report by Bank of Baroda.

In CY22 so far, according to the observations made by Bank of Baroda, the Indian equity markets (both Sensex and Nifty) performed relatively better than other major global equity markets.

For comparison purpose, the bank assumed December 2021 to be the base and analysed how global markets have performed this year since then.

"Compared with December 21, Sensex and Nifty are up by 2.3% in August 2022, and FTSE is up by 2.8%. On the other hand, Dow Jones (-7%), S&P500 (-10.7%), Nikkei (-0.5%) and Hang Seng (-15.3%) are all considerably down compared to last year," it showed.

A key reason for the performance of stock markets in the US remains concerns regarding growth slowdown and Fed’s aggressive monetary policy stance.

Recently at Jackson Hole too, Fed Chair Powell reasserted that the Fed will continue to remain hawkish to tame currently elevated levels of inflation. This is expected to hurt growth in the near-term. Tech-heavy S&P 500 has thus been impacted the most in the US, the report added.

In case of UK, FTSE is largely dominated by financial, energy and material stocks (contributing to 41% in FTSE versus 16% in S&P). These stocks have been buoyed by increase in rates and global commodity prices. Also there is limited dominance of tech stocks which acted as a drag in other market indices.

In India’s case, sustained improvement in economic growth has helped its stock markets. So far in the calendar year till date (CYTD22), air passenger traffic growth is up by 82% (YoY), rail freight traffic by 9.3%, toll collections by 62% and diesel consumption by 13%.

Corporate results for Q1FY23 rose solidly. Even looking at 3Y CAGR, sales rose by 13.3% during this period compared with 39.8% when reckoned over FY21.

Net Interest Income (NII) of banks also grew at a robust pace of 14.6% in Q1FY23 against 7.7% in Q1FY22. This is on account of increase in interest income to 10.2% in Q1FY23 from 3.3% decline in Q1FY22.

Helped by rising interest rates regime, expanding retail loan book and improved credit quality, many banking stocks have outperformed broader market indices this year.

The performance of the banking stocks has been particularly good in the last few weeks with the BSE Bankex index rising by nearly 13% since mid-June, data showed.

Foreign Portfolio Investments (FPIs)

FPIs remained net buyers in equity with investment touching a 19-month high on expectations that Indian economy and markets will outperform the US, Euro Zone and China this year and next. Capital flows are responding to this potential trend.

In India, FPIs (equity) have seen a turnaround in the last 2 months (Jul-Aug’22) with inflows at US$ 6.8bn, compared with outflow of US$ 28.6bn between Jan-Jun’22.

In CYTD terms, FPI outflows from India stood at US$ 21.7bn (till 26 Aug), compared with outflows of US$ 85.3bn (till Jun’22) from China, US$ 38.2bn from Taiwan (till 29 Aug), US$ 211.8bn from US (till Jun’22), and US$ 133.1bn from Euro Area (till Jun’22).

Foreign portfolio investors (FPIs) have also increased their exposure to banking and finance stocks following an improving credit cycle, signs of recovery in capital expenditure (capex), and rising asset quality. They have invested over $ 1 billion in financial services stocks in the past 30 days, ET reported.

Going Forward

Going forward, global markets will react to incoming data from the US, Europe and China to assess the impact of consistent rate hikes by major central banks, the report said.

Energy crisis in Europe and increasing bills of utilities, food, beverages in the UK will affect consumption demand in the area, thus increasing risk of recession. China’s looming property crisis will add to global woes.

In India, with festive season ahead, investors will closely monitor impact of inflation and front-loading of rate hikes by RBI on domestic demand, it added.

-       Bfsi ET