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Emkay Wealth Management, the wealth management and advisory arm of Emkay Global Financial Services has released a note on equities and the likely factors that are driving the course going forward. The equity indexes have moved up in the aftermath of the pause in the rate hikes by the RBI and the US Fed. The pause has brought about some clarity with regard to the fund flows into the Indian markets. Not surprisingly the foreign investors have also come back into the markets in a regular and consistent way. The FPI flows have been to the tune of $5481 million in equities and $238 million in debt (both FYTD), and $2672 million in equities and $679 million in debt (both CYTD). This is a precursor to the gradually shifting winds. A continuation of this trend would give a boost to the markets and also supply liquidity to the domestic markets.

OPEC may intervene if crude prices dip below $75

With inflation under control, to a large extent, and the threats of a further spike in inflation more or evenly balanced at this juncture, the elevation in prices is likely to moderate. While climatic changes and the impact on food prices cannot be ruled out, the other major volatile component is the fuel which looks like it is more or less range bound. Any dip below the US$ 75 level has attracted action from OPEC +, and it has not been able to sustain above the US$ 85 level in the recent past. This is despite the demand factors that have a propelling effect on the prices, as the Chinese economy opened up from the pandemic shutdown. Because of these factors, the threat of higher interest rates and the resultant impact on the cost of funds is eased to a large extent.

Improving the growth rate will boost earnings and market momentum

Yet another factor of import for the markets is the rate of GDP growth. The last financial year witnessed a growth of 7%. In the current year, the rate of economic growth is expected to be slower bordering somewhere at the 6% level. While the forecast for growth for major economies is far lower, and growth in China is placed at around 4.50-5%, the rate of growth in India will stand out comparatively better. This should provide an edge to the local markets in terms of their earning profile and momentum.

Mfg, Tech, and banking & financial services will add to the performance of portfolios

In the last few updates, we indicated that the three sectors that will add to the performance of the portfolios are manufacturing, Technology, and banking & financial services. The earnings season has brought the performance of banks to the fore. Most of the banks reported healthy earnings in Q4, accounted for mainly by strong credit growth. Healthy margins with improving asset quality have contributed to the performance. The PSU banks too clocked in one of the best quarters so far. The rate cycle has almost peaked, but a cycle reversal is important for the banks. In due course, it will help them improve their margins in the coming quarters.

After the selloff in tech, the sector has stabilized at lower levels. The peak index of 38,860 was reached on January 10, 2022, and the lowest level it touched in the last year was 26,676 on Apr 19, 2023. Currently, it is trading around the 29,000 level. There is strong support at 26,800 as one can infer from a 5-year chart, and the first target on the upside is 31,106.

Manufacturing too is undergoing fast-paced changes with a huge outlay of government capex of Rs 10 lakh crore, the incentives to local manufacturing under the PLI scheme, and the extraordinary expansion of manufacturing exports. Exports rose from US$ 290 billion in FY21 to 418 billion in FY22, which is a 40% growth. The momentum will be kept up with the various programs mentioned earlier.

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