At 13.8% gains, India best-performing stock market since June lows

Most global markets have bounced off their multi-months lows made in June as inflation concerns eased and expectations of fewer rate hikes from the US Federal Reserve (Fed) helped cool off bond yields and improve portfolio flows.

However, the performance of Indian markets stands apart.

The benchmark Nifty50 Index has gained the most among major global markets, soaring 13.8 per cent since June 17, when it had dropped to its lowest levels in 13 months.

In dollar terms, however, the US gained the most at 12.8 per cent. All major global currencies have weakened against the greenback in recent months.

Risky assets had seen a sharp plunge in June — with many slipping into bear-market territory — as investors took money off the table amid fears that aggressive rate hikes by the Fed would trigger recession. The war in Ukraine and its impact on commodity prices had also crimped investor sentiment.

The Sensex ended its session on June 17 at 51,360.4. It declined close to 3,000 points during that week - the worst weekly performance since May 8, 2020. 

Since then, markets have staged a remarkable comeback. As recession fears led to a sell-off in commodities such as Brent crude, steel, iron ore, and other industrial metals, it also gave rise to the ‘peak inflation’ theory — the worst of price rise being behind us. 

The fall in input costs helped the market recover amidst hopes that central banks may not be as aggressive when it comes to monetary tightening as feared.

Although the Fed raised interest rates by 75 basis points for the second straight month in July, Jerome Powell’s statement that future hikes will be guided by data lifted sentiment.

The improved sentiment made foreign portfolio investors (FPIs) net-buyers of Indian equities after nine months. In July, FPIs bought shares worth Rs 4,989 crore. So far in August, they have been net-buyers worth Rs 14,175 crore. 

Hopes of India becoming one of the better-performing economies in a recession year also made investors warm up to Indian equities.

“Fears of recession notwithstanding, everyone agrees that India will grow at least 7 per cent this financial year (2022-23). If the Taiwan crisis does not get out of hand, Indian markets may see further gains,” says Chokkalingam G, founder, Equinomics Research & Advisory.

Some experts have even attributed the gains in July and last week to the Sensex repeating the pattern of bouncing back after three months of decline. The last time a three-month continuous fall happened was between January 2020 and March 2020, when uncertainty around the Covid-19 pandemic and lockdowns rattled investors.

But the Sensex gained 14.4 per cent in April 2020. But except for one time, the benchmark Nifty has never declined for four straight months in two decades. Some experts have attributed this trend to valuations turning favourable.

However, geopolitical risks and recession fears continue to persist. And valuation comfort is no longer there. Experts say one has to see whether central banks can slow the pace of hikes or if inflation pressures would arm-twist them into aggressive tightening. 

“At these levels, valuation comfort is less than what it was earlier. Gains could be muted from here on. If someone has to buy at these levels, what are the factors that could take Nifty to 18,500 levels with the kind of headwinds that persist?” asks Ambareesh Baliga, an independent markets analyst.

The Nifty last closed at a near-four-month high of 17,398.