The biggest problem, or we can call them challenges, facing the economy are currently geopolitical tensions like the Russia-Ukraine war and tracking inflation by market as it can have a close impact on monetary policy. These are the two risks due to which investors like FII and DII are pulling their money out of the market. But according to experts, this situation is absolutely considered one of the best situations where investors can invest their money in big company shares, as this is the big discount the market is giving. But this situation may remain only for the next 4 to 5 months, as experts believe that as they get closer to the next Fed policy meeting, which is scheduled to be held somewhere around the months of May and June, there will be greater clarity on the terminal policy rate, which can also help revive FII flows in the second half of FY23. For the current time being, we can assume that this is probably the best time to add subsidies, especially in the sectors like banking and NBFCs, to benefit from any re-rating that could happen as currently stock market sentiments are improving, while the power sector is continuing to witness a healthy demand that could make it an attractive bet.
First half of FY23 according to experts: Experts believe that the market is currently closely monitoring inflation and its impact on monetary policy. It is assumed that the rate tightening might end in the first half of FY23, and if this really happens, we can witness that the FII flows might turn positive to help drive activity in primary markets. However, they also expect that such a revival can be slower than a sharp jump as markets and central banks, which are policymakers, will be keeping a close eye on dates of inflation and also on growth.
Equity market sentiment at present stage: At the present time, we are witnessing domestic market sentiments having turned negative for the past few weeks, and the same can be expected to continue until the end of the month as well. According to the latest data arrived from the US on personal consumption expenditure, which was released on Friday, the exceeded expectations along with the Fed minutes have caused the markets to think again in terms of the terminal policy rate and its timeline. This will likely be less strong in March until the month’s data is released, which could help understand the trend and change market expectations. Not only is macroeconomic policy a big problem, but apart from that, as mentioned above, which is prevailing in economics, there are also geopolitical events, which are also closely watched, along with the India and US elections, which are scheduled for the next year 2024, and, adding one more situation, the G20 presidency, which is currently focusing on India.
Bullish on the banking sector: Along with this situation expects are very closely tracking the financial sector as they believe that prices of these sector companies lower then what it was before covid. They also said that current environment on improving asset quality and expected credit growth could present an opportunity to invest in banking and Non-Banking Financial Companies sectors.
Fed officials’ statement on remaining hawkish: In the current scenario, the Fed is said to be aggressive in its rate hike situation. It is said that they might also increase the rate hike in the coming Fed policy meeting, but according to the experts, the Fed could like to take a pause, or we can say that it can close after increasing it to 5 percent and would likely stay there for a longer period. If certain levels are surpassed, it could have a negative impact on global economic growth and make it more difficult to achieve a soft landing," i.e., a slowdown that occurs gradually, avoiding a sharp downturn or recession for the economy.
Power sector looking attractive: Experts are witnessing that the power sector has also continued to show a healthy demand, making it suitable from an investment point of view. Currently in this segment, utilities companies that are adding capacity through a combination of renewables and distribution, and have robust businesses, could be considered as potential investments for a medium- to long-term portfolio allocation. We can say that investing in utilities companies that are adding capacity through renewables and distribution and have robust businesses, can potentially offer attractive investment opportunities for investors seeking exposure to the energy sector with a focus on sustainability and long-term growth.
Fed risk effects on FII Flows: Experts believe that FII flows are likely to remain volatile in the near term due to monetary policy risks, but there is potential for a revival in FII flows towards the later part of CY2023, depending on the outcome of the Fed policy meetings. However, it is important to note that actual outcomes may vary depending on a range of factors, and investment decisions should be based on careful analysis and consideration of risks and potential rewards.
DII and SIP inflows to slow down: Experts believe that the resilience of retail investors in India and the continued support of DIIs have helped to mitigate the impact of market volatility. It is important to note, however, that actual outcomes may vary depending on a range of factors, and investment decisions should be based on careful analysis and consideration of risks and potential rewards.
Conclusion:
In the current scenario, we can expect that markets are facing lots and lots of challenges according to the current economic condition, such as the rate hike situation, election sessions in India and the US in the next year 2024, and many more such situations that are creating a panic situation in the minds of investors, but this is said to last until the first of this year 2023, and then this situation may take a turn, and finally we can see some cash inflows in the markets. However, in the current scenario, we expect and believe that it’s a great time to start in terms of investments, as valuations are in a supportive mode. In short, this is said to be probably the best time for start investment.
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