EF Digest - October 2023

Dear Investors,

Nifty scaled the 20,000 level in September 2023 but retraced back to 19,600 – 19,700 on profit booking in the last 2 weeks. Sensex closed the month above the psychological 65,000 level. Global factors were responsible for the volatility in the last 2 weeks of the month. In the FOMC meeting held in September the US Federal Reserve held interest rates unchanged but indicated another rate hike before the end of this calendar year. For the markets, the commentary coming from Fed was hawkish. Due persistently high inflation, the market is expecting Fed to continue holding interest rates at record high levels for a longer time than previously expected. Spike in crude prices with WTI crude crossing the $90 per barrel mark, was also a dampener for equities.

US bond yields climbed after the FOMC meeting and now are at 16 year high above the Fed’s target range. High yields made US Treasury bonds comparable to other asset classes. Emerging market equities are impacted more due to currency depreciation. FII flows turned negative in September with net outflow of Rs 16,000 crores. India continued to outperform the emerging markets pack with MSCI India USD Index clocking 1.6% gains while MSCI EM Index falling 2.8%. The US markets were weak in September and global markets will take cues from the US market.

The broader market continued to outperform the Nifty with midcaps and small caps gaining 4 – 5% in September. Domestic investor resilience, especially mutual fund flows are providing support to midcaps and small caps. Sector rotation continued with telecom, infrastructure, capital goods, power and metals among the top performing sectors in September. PSU stocks also continued their strong performance. FMCG and banks were the underperforming sectors. Overall we continue to bullish on Indian equities over long investment horizons. You should continue to invest in equities with long investment horizon with focus on asset allocation.

In the commodity markets, gold declined to Rs 57,500 (per 10 grams) levels while silver lost 4%. High bond yields in the US will provide headwinds to gold in the near term, but this can be a good level for long term investors to accumulate gold. Crude has rallied from $68 – 69 per barrel to $91 per barrel, but the headroom for an extended rally in crude seems limited.

The 10 year bond yield in India was range bound in the 7.1 – 7.2%. There may be short term volatility in bond prices, but downside risks of long duration funds are limited at these yields. The yield curve has been inverted in the 3 to 10 year maturities range, which means that short term yields may fall in the future when mean reversion takes place. Investors can take advantage of higher yields by investing in accrual based shorter duration funds of high credit quality.

The festive season is upon us. This is the time for new beginnings and making positive changes in our lives. I and my team wish you and your families a very auspicious and happy Durga Puja and Dussehra.

Best Wishes,

Ajoy Agarwal,

(Managing Director)