Credit Suisse Wealth Management releases months outlook report

Attached herewith is the India Monthly Outlook May 2023 co-authored by Jitendra Gohil – Director, Global Investment Management, Credit Suisse Wealth Management India, and Premal Kamdar, Research Analyst, Credit Suisse Wealth Management.

Market snapshot:

The India equity market significantly outperformed global peers with the Nifty index surging 2.7% over the past four weeks compared to the MSCI World, MSCI EM, and MSCI Asia ex-Japan indices' returns of -0.2%, -2.8%, and -3.6%, respectively. The Nifty Midcap index returns were staggering +6.3% during the same period as risk sentiment improved due to the fall in oil prices and return of FPI inflows into India. The earnings season also showed resilience as the outlook improved and commodity prices fell.

Global bond yields fell initially as the US Federal Reserve hinted at a possible pause in its rate hiking cycle; however, strong macro data points and increase in inflation expectations led to spike in the US 10Y Treasury yield. Overall, the 10Y US Treasury yield largely remained flat during the past four weeks. Nevertheless, the Indian 10Y government bond yield fell by 26 bp supported by falling oil prices, improved inflation outlook, and peaking of the rate hike cycle.

FPI inflows into Indian equities have turned positive (USD +2.1 bn) on a YTD basis. The inflows since March till date (as of 17 May) of USD 6.4 bn have fully offset the outflows recorded in Jan and Feb. Meanwhile, domestic mutual funds turned net sellers in April and May with a total selling of USD 0.7 bn so far compared to net buying of USD 6.7 bn in the first quarter of 2023.

Brent oil prices fell sharply by ~9.2% over the past four weeks as the global economic slowdown and the below-expected economic recovery in China raised demand concerns, which outweighed supply cuts announced earlier by the OPEC+ nations.

Outlook:

India’s macro should get some tailwinds with a fall in commodity prices. Moreover, FPI buying in Indian equities may continue given weaker growth elsewhere and the good earnings season so far. We suggest investors should focus on interest rate-sensitive sectors and consumption-oriented names such as banks, NBFCs, real estate and the allied sectors, and autos. We also like FMCG and consumer durables sectors that may benefit from rural revival.

For now, we maintain a positive stance on medium-duration bonds (3-5 years’ maturity), while having a neutral view on low-duration and long-duration bonds. Given the relative flatness of the yield curve, we await a better entry opportunity to increase the duration in our portfolio. We currently prefer Gilts over credits as we believe credit spreads are not attractive at current levels, thus risk rewards remain in favor of Gilts.

Happy to resolve any additional queries you may have regarding the same.