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Below is quote on Market By Shibani Kurian, Senior EVP & Head- Equity Research, Kotak Mahindra Asset Management Company

 “Indian equity market witnessed some degree of consolidation over the last week amidst rising global inflation (especially in the US), move up of US Dollar index as well as higher headline valuations for the Indian equity markets. Over the last week, the markets saw FIIs being net sellers while DIIs were net buyers of Indian equities. The week also saw the listing of a few new age IPOs in the fin-tech and ecommerce space with very varied outcomes.

Economy activity and macro indicators continued to improve boosted by the festive season as seen in the high frequency economic data. The number of active Covid cases have now returned to levels seen before the start of the second Covid wave. Manufacturing PMI improved to 55.9 in Oct’21, up from 52.7 in Sept’21, supported by strong order inflow although employment generation remained under some pressure. Services PMI accelerated to 58.4 in Oct (vs. 55.2 in Sept) marking the highest reading since April 2011. E-way bill generation was up 8.2% MoM in Oct’21, supported by festive demand. GST (Goods and service Tax) collection in Oct’21 stood at INR 1.3Tn (~USD 17.38Bn) - the second highest level since inception and up by 23.8% YoY and 11.2% MoM. September IIP grew by 3.1% (August: 12%) on a low base, while declining sequentially by 2.6%. Compared to September 2019, IIP was 4% higher

In India, October CPI inflation picked up marginally to 4.48% (September: 4.35%) on the back of a sequential pick up in food inflation. Food and beverages inflation increased to 1.8% from 1.6% in September, with the food index increasing to 2.6% MoM. Core CPI inflation remained sticky and elevated at 6%, broadly unchanged from September. We expect that domestic inflation will likely rise from current levels, however, the focus of RBI in the near term would likely remain on sustainability of the growth momentum. The central bank in their last policy indicated that they are looking at calibrated approach in terms of normalisation of monetary policy.  However, it remains to be seen how global central banks react especially if inflation globally stays higher for longer.

The recently concluded 2QFY22 earnings season in India continued to keep pace with estimates . in Q2FY22, the net profits of the Nifty-50 Index increased 37% YoY and EBITDA of the Nifty-50 Index increased 24% YoY.  On one hand, companies benefitted from a) strong revenue growth, e.g. in the technology sector, capital goods etc. b) steady recovery in loan growth (seen in the case of private sector banks), as well recovery and upgrade in the asset quality of most private sector banks, c) higher commodity prices and volume growth in the energy and metal sectors, and d) opening up of the economy which boosted consumer and retail growth. On the other hand, due to higher commodity and inputs costs,  EBITDA margin (ex-financials) have seen some degree of pressure which was partly offset by the higher topline growth on the back of strong demand recovery.

From here on the sustenance of demand as well as the trajectory of commodity costs and its impact on earnings if any, would be the key variables to watch out for. The pace of normalisation of monetary policy globally, the COVID case curve and the movement of the US Dollar index, among other factors, would also likely determine the trajectory of markets.”

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