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Take a quick look at how asset classes across India and the globe fared.
Rampant inflation, higher commodity prices, geopolitical tensions, and worries about an impending recession drove global markets lower in the first half of 2022. However, July has bucked that trend, both in India and globally. In India, almost all sectors regained momentum; banks, metals, and consumer stocks witnessed the largest gains.
Equities: Come Back of the Bulls
The Nifty 50, an index of the 50 largest Indian stocks by market cap and a broad gauge of the market, recorded its best July in over 20years. More than half the stocks in the index rose by over 10% in the month. The Nifty 50 itself gained 8.73%. Mid- and small-cap stocks also did well in July. In fact, mid-caps were the best performing segment by cap size, returning~11.5%.
Positive global cues, healthy earnings results, softening commodity prices, and net purchases by Foreign Portfolio Investors (FPIs –these are non-resident investors, including individuals and institutions) boosted markets in India during the month. Net FPI inflows amounted to $618 million inequities – a shift after consecutive months of net sales.
Globally, markets reacted positively to the US Federal Reserve’s eagerly awaited statement on July 2nd. The Fed hiked interest rates another 75bps to keep inflation under tabs, but quelled any fears of a more aggressive than expected hiking schedule. They also noted that they are keeping tabs on how the hikes are impacting the economy and the markets – an indication that they will keep policy flexible to accommodate markets as they work to rein in inflation. US equities, represented by the S&P 500, ended the month up more than 9%.
Debt: Turnaround of Foreign Investments
In July, high-rated corporate debt and government bonds performed well, as investors started pricing in a less aggressive rate hike schedule in both India and the US. In fact, Indian government bonds witnessed their highest monthly purchase by foreign banks in 2.5 years at around $1.87billion.
As we look to the rest of Q2, investors will continue to keep an eye out for: indications on inflation, commodity prices, global economic growth, global monetary policy, and the ever-evolving geopolitical landscape. In India specifically, we still have the remainder of Q1 earnings reports also to come in August.