Vinod Bhat's Market Pulse - Aug 4, 2022
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With the exception of Chinese stocks, all major global equity indices advanced in July as falling bond yields created a tailwind for global stocks. However, if we dissect the regional equity performance, we can see some trends emerging.
US stocks outperformed their global peers in July as bond yields fell, following a period of underperformance in H1 when yields were rising and markets with the greatest exposure to energy stocks (e.g. UK and Canada) benefitted from higher oil prices. However, a new major downtrend in yields has not begun and it remains to be seen if the rally in US equities is sustainable.
Meanwhile, the energy crisis remains a risk to European economies, weighing on Eurozone equities. And in the case of China, the July weakness reflects disappointing signals about the H2 CY22 growth outlook.
Indian equity markets have been buoyed by global macro developments, strong economic indicators and resilient flows. July high frequency indicators show sustained improvement, e.g., both manufacturing and services PMIs are posting robust growth bucking global trend and GST collections, e-way bill generation etc. are stable.
Trade policy interventions and geopolitical developments have had the desired impact viz. moderation in input price pressures providing room for domestic demand to grow. Local demand indicators are strong but the growth is skewed on two fronts due to lopsided trade policy intervention and inequitable distribution.
One, domestic demand is doing better led by construction and capital goods as per manufacturing PMI but there is moderation in domestic cargo traffic. Two, domestic air-traffic has crossed pre-pandemic level and international travel is improving but two-wheeler sales are slowing in sequential terms.