The month of June presented a blockbuster rally in the Indian stock market that led both the NIFTY 50 and BSE Sensex to climb to their all-time highs, not once but thrice. The NIFTY 50 traded near the 19,300 mark and Sensex surpassed 65,000 as the month ended on the back of strong inflows from foreign institutional investors (FIIs), robust corporate balance sheets, moderating inflation and growth picking up coupled with expectations of a normal monsoon season, all of which bolstered the sentiment of market participants.
Amid positive news from domestic quarters, the future for the markets may not all be all rosy with headwinds from international shores arising from the U.S. Fed indicating two successive rate hikes and the war in Ukraine still ongoing.
Will this rally continue and how you should approach the stock market are questions that we’ll help answer in this guide on the Indian stock market outlook for July 2023.
India Stock Market Outlook in July
India has prospered in a slow-growing global context by offering a chance for sustainable growth at a macro level. Since April 2023, markets have rallied more than 8% year-to-date (YTD) helped by stable macroeconomic outlook and benign crude oil prices.
The Q4 earnings have also been encouraging indicating continued demand traction. The small and midcap indices have outperformed the larger benchmarks during the current quarter, lending strength to the trend of narrowing valuation differential.
Ajit Banerjee, the chief investment officer of Shriram Life Insurance, believes the Indian markets are at the starting point of a mid-to-long term bull market.
“Our country’s strong growth potential, commendable financial results and political and macro-economic stability already make it a wonderful opportunity for FIIs to sustain their inflows. Hence, the outlook for July looks positive,” says Banerjee.
Nirvi Ashar, fundamental analyst at Religare Broking, thinks while easing inflation data and consistent inflow from FIIs will keep on boosting the market sentiment, corporate earnings outcome will keep stock-specific volatility high and concerns with regards to global growth may impact investors’ sentiments.
Poonam Tandon, chief investment officer at IndiaFirst life Insurance, says the recent rally might see markets remaining range bound with a negative bias in the near-term.
Markets are likely to consolidate with profit-taking bias, as Q1FY24 earnings are being discounted, believes Dharmesh Kant, the head of equity research at Cholamandalam Securities.
Kant expects sectors including cement, capital goods, infra, realty, automobiles both passenger vehicles and two-wheelers to do better in July as they all have tailwinds in lower input prices and better sales and volume numbers.
Risks to Avert While Investing in July
When the market is driven by momentum, several stocks that aren’t fundamentally very strong also tend to rise. This situation isn’t specific to the month of July alone. Hence, investors must be cautious while investing and do the required analysis before making investment calls, say experts.
Tandon suggests one should avoid fear-of-missing-out (FOMO) trades as lofty valuation in some sectors and companies makes it more vulnerable for them to fall. Also, risk could emerge in terms of higher inflation and more hawkish U.S.Fed’s commentary than what the market is expecting.
Many believe the market isn’t giving due credit to the potential delay that may impact agricultural output, and thus add to the inflation scare. Therefore, if inflation levels driven by food prices flare up then the Reserve Bank of India (RBI) may have to take necessary steps to arrest inflation as it has made its position very clear in the last monetary policy committee (MPC) meet that inflation control gains more priority at this point of time over supporting growth.
Banerjee says in view of the continued adverse economic conditions in the west, external market-facing companies continue to bear the brunt and hence those must be avoided at this point of time of the market cycle.
For investors an ideal thing would be to diversify their investment across sectors and not invest in one sector or stock, says Ashar.
While investing, top elements to analyze must include opportunities in specific sectors or stocks, management growth plans, corporate governance matrix, debt-ridden companies and stability in the companies financials.
Key Events to Watch for in July
Among the key events to watch for in July include the following:
- In July, firstly, inflation data will be an important event to watch as interest rate hike or cut and monetary committee outlook will depend on it.
- In the domestic market, investor’s main focus will be on Q1FY24 corporate earnings season and outlook by companies’ management.
- FII activity will also be on radar as from the past three to four months, the Indian stock markets are seeing consistent buying interest that has resulted as one of the key reasons for the recent market rally.
- Progress of the monsoon in the country considering any delay or below than expected monsoons can impact the rural recovery.
- Decisions on rates to be taken in the next Fed meeting scheduled in the last week of July
- Geo-political developments in the Russia-Ukraine region
- Movement in oil prices include the key events to watch out for in July.
How Should You Invest in July?
Irrespective of the underlying market conditions, the basic principle of investments doesn’t change. Staggered buying on well-researched themes and ideas and using intermittent correction to buy good quality companies at decent valuations is always a safer way of investing, says experts.
As a general rule of thumb, one should invest purely on the basis of their risk appetite i.e. the quantum of risk, which they can sustain in the most adverse conditions, investment horizon for which the investments can be made, existing financial commitments or obligations and the investment objective for which investments are made, suggests Banerjee.
Based on these broad principles the asset allocation decision, investment instrument selection, scripts selections are required to be made. Investment decision has to be preceded by a thorough analysis by the investor or managed through a professional portfolio or fund manager as the case may be.
Ashar recommends investors buy and accumulate stocks on dips. “Invest in stocks with quality names and promising long-term growth prospects while avoiding high debt companies. Our suggestion would be to invest in sectors such as BFSI, FMCG, auto, cement for one- to two-year while in the IT sector from two- to three-year perspective.”
Kant finds sectors including capital goods, auto-ancillaries, speciality chemical and pharmaceutical intermediaries, metals and select midcaps looking promising from valuations and earnings-growth perspective.
source:https://www.forbes.com/advisor/in/investing/stock-market-outlook-2023/