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OVERVIEW OF MARKET

After 4 straight months of positive returnsto start the financial year, August saw the benchmark Nifty take a breather, closing 2.5% lower for the month at 19,254. The index performance was driven by possible profit booking on the back of lifetime highs as well as weaker FPI inflows. The rise in the volatality index indicator (VIX) from 10.4 to 12 reflected concerns around resurgent food inflation on account of continuing geopolitical events and uneven distribution of rainfall. The benchmark 10 Y G-sec paper traded in a narrow range (7.15% to 7.25%) during the period, and closed flat at 7.17%. Global equity markets also showed some fatigue during the period, with S&P 500 down by 1.8%, Nikkei 225 down by 1.7%, Shanghai Composite down by 5.2% and DAX down by 3%. The outlook for major economies remains colored by the trajectory of their respective inflation readings, with an overhang of resurgent food inflation due to the Russia-Ukraine conflict.

The Indian economy continues to stand out for its growth amidst an anemic global economic scenario. The same is reflected in the relative strength of the INR vs the USD. Notwithstanding the above, retail inflation surged to a 15- month high of 7.44% in July, led by food inflation of 11.5%, primarily driven by spiralling vegetable prices. Food inflation constitutes almost half of the consumer price basket, and registered its highest level since the beginning of the Covid-19. The key reason for the food price shocks is the uneven spatial distribution of monsoon, simultaenously creating pockets of flood and drought across the country. The government has restricted exports of certain food items to maintain food security, while the RBI raised its inflation forecast for FY24 to 5.4% (prev: 5.1%.).

On the monsoon front, a wet July was followed by the driest August on record for the country, as the impact of the “ElNino” phenomenon becomes more pronounced. A similarly subdued start to precipitation in September could lead to a longer bout of food inflation, as the rabi sowing would also get impacted. Vegetables and pulses remain the most vulnerable. From a sectoral point of view, all sectors except IT (+4%) and Media (+11%) ended in red, among them, the major losers were BFSI (-4%) and Energy (-3%). During the period, FIIs were net sellers in equities (on net basis) to the tune of ~Rs 20,621 Cr and DIIs were net buyers of equities (on net basis) to the tune of ~Rs 25,017 Cr . In the first 5 months of FY24, FPIs invested Rs 1.6 lac cr as against net outflow of Rs 0.5 lac cr in the corresponding period last year.