Market was up 2.6% primarily driven by FIIs buying (highest flows since Nov-22), favorable macros,
reasonable stock valuations and resilient earnings. Auto, Consumer (FMCG) and IT have been the
frontrunner sectors while PSU banks and O&G have been the laggards. The INR depreciated against
the USD by 1.1% in May’23 due to the uncertainties caused by US Debt ceiling negotiations. It averaged
around 82.4 with a monthly best and worst of 81.8 and 82.8 respectively. 10yr benchmark yields traded
in the range of 6.96%-7.04% and eventually ended the month 13bps lower sequentially at 7%. The 10y
benchmark averaged 7.01% in May.
US Debt ceiling negotiations came to an end as both the parties agreed to a bipartisan deal. If passed
by both the houses, it would suspend US31trn debt limit and prevent a default. On expected lines, Fed
undertook a 25bps rate hike in May’23 and has now cumulatively increased the policy rate by 500bps. The
minutes from the meeting suggested that there is scope for the Fed to take a pause in rate hike and take
further decisions based on the incoming data as tight financial conditions would lead to a recession in the
current year followed by moderately paced recovery.US to witness tighter credit conditions due to rising
interest rates and impact of banking turmoil. Recent data though, suggests that rate hike cycle is far
from over.US inflation rate remained stubbornly high at 4.9% in Apr’23. US core PCE price index (Federal
Reserve’s preferred gauge of inflation) increased to 4.7%YoY in April compared to 4.6% in the previous
month. Looking at the employment scenario, US economy created 250k jobs in April, which beat market
expectations of 180k jobs, indicating a tight labor market. Central banks across AEs increased policy
rates in May. ECB and Bank of England, both increased policy rate by 25bps. While Eurozone inflation
grew to 7% in April, UK saw inflation moderate to 8.7%.
GDP growth in Q4FY23 was 6.1% YoY. This led to FY23 GDP grow at 7.2%YoY, beating government’s
estimates by 20 bps. The beat was driven by agricultural sector, which witnessed its highest growth since
Q4FY20. Similarly, services sector continues to grow at a high rate of 6.9% while double digit growth
in construction drove industry sector growth. Investments was the silver lining as it grew by 8.9% in
Q4FY23. Centre was able to limit its fiscal deficit to the budgeted 6.4% (of the GDP). Government’s capex
grew by 24% YoY in FY23 and was higher than the revised estimates. The absolute fiscal deficit was lower
than the revised estimates as government reined in its revenue expenditure. Owing to favorable base
and moderation in price rise, India CPI dipped to 4.7% YoY in April vs. 5.7% in the last month with core
CPI slowing to 35-month low of 5.2% YoY. April inflation print also saw softening in sequential inflation
for food, fuel & light, clothing & footwear, services and housing. Such a positive inflation print has firmed
street’s expectations of the MPC holding the policy rates in the June’23 meet. High frequency indicators
suggest resilience in domestic demand with highest ever GST collections and significantly strong PMI.
Both manufacturing and services PMI registered higher activity with service sector leading the growth.
Brent crude prices decreased from an average of USD83.4/bbl in April to USD75.7/bbl in May as it ranged
between USD72-USD79/bbl. The fall in prices was a reaction to data suggesting tepid recovery of Chinese
manufacturing and uncertainties caused due to USA’s debt ceiling negotiations. Gold prices fell marginally
as it ended at USD 1,964/oz in May from USD 1,983/oz in April. Steel price trended lower as HRC prices
ended the month at USD934/ton compared to USD 1,069/ton in April.