All major global markets rallied in July with returns in USD terms as follows: US +9.2%, India 8.7%, Japan +5.7%, Brazil +5.5%, and Euro area +4.9%. Only China was the outlier with -10% MoM.
Globally, concerns of a synchronized downturn in US and Western Europe persist. However, the shift in inflation and rates expectations is not only supporting broader markets but has also resulted in recent better performance of Growth versus Value.
In India, performance of both mid-caps (+11.4% MoM) and small caps (+9% MoM) was better than largecap Nifty (+8.7% MoM). All sectors barring Energy ended the month in the green with Materials, Financials, Industrials and Staples being the strongest.
Half-way through the 1QFY23 Earning Season, the overall performance has been moderate as slow demand and volatile commodity prices have impacted volume growth while high inflation and Energy cost have weighed on the margins across sectors. Supply-chain related issues persisted for sectors such as Automotive, Chemicals, Infrastructure projects etc.
However, earnings are holding up reasonably well with some pockets exhibiting strong performance amid the slow down. Part of the inflation pressure was mitigated by price-action and operating leverage.
The key positive takeaway is that management commentary from most companies was upbeat, guiding for improved business outlook going forward aided by a) Easing supply-chain constraints, b) Softening commodity prices, c) Recovery in domestic consumption demand during the ensuing Festive Season, and d) Pick up in execution of Infrastructure projects.