Monthly stock market review: April 2023

April 2023 share market review

April 2023 began on a positive note. RBI, in its April 2023 policy meeting, opted to maintain the status quo on repo rates at 6.5%. This was contrary to the popular perception that the RBI would go ahead and hike rates by another 25 bps. The signal was that, while the interest rates in India may not have peaked, it was certainly close to the peak. In response, the foreign portfolio investors infused funds into India with a vengeance. April 2023 was a truncated month with just 17 trading sessions. Still, the FPIs managed to infuse a healthy $1.41 billion into Indian equities in this period. Obviously, that led to a smart rally in the stock markets and the rally was spread out across small caps, large caps, and mid-caps. In fact, the Nifty even recouped the psychological 18,000 levels by the close of April 2023.

How the key indices fared in April 2023?

The rally was across the board with buying seen across small-cap, mid-cap, and large-cap companies. Also, the interesting aspect is that the FPIs remained net buyers on majority of the days and the buying was spread through the month rather than in a handful of block deals. Here is the table of returns on key indices in April 2023.

We will look at the sectoral movers in a more granular fashion in the ensuing section, but what is of note here is that the rally from lower levels was quite sharp during the month. In March, the FPI flows were still driven by the GQG infusion into Adani group. There were no such special privileges in April and the infusion was more secular in nature.

How key sectors/themes performed in April 2023?

Here we look at the five best performing themes and the five bottom performing themes for the month of April 2023.

Data Source: NSE

If you look at the gainers, the obvious theme appears to be the rate sensitives, especially in the aftermath of the RBI going slow on rate hikes. Here are some key takeaways.

• Let us look at the top five sectors in terms of monthly returns and these have been shaded in light green hue for clarity. There are no two questions as all of them are driven by the rate sensitive story. Among the top performing sectors. Banks, NBFCs, auto and realty all stand to gain from lower rates. Clearly, the enthusiasm in April in rate sensitives appears to be an outcome of the RBI decision to go slow on rate hikes.
   
• In the entire list of sectors, only the IT sector has given negative returns with all the other sectors giving positive returns. However, apart from IT, returns were tepid for consumer durables, media, digital and the MNC theme. Digital stocks are still struggling from the overhang of 2021 while MNCs were cautious about a possible slowdown in their parent country. Consumer durables were also tepid on demand concerns. We can ignore the media sector as it is too dependent on the performance of one stock.

While the RBI decision to hold rates has surely come as a boost to markets, there are still some domestic and global concerns for investors. These headwinds cannot be ignored.

Domestic concerns exist, and global headwinds glossed over

In a sense, the markets have opted to look at the positive side of domestic challenges and have also chosen to ignore the global headwinds. Here are some of the headwinds that could really matter in the coming days.

1. The RBI minutes have underlined that the decision to hold rates was a pause and not the end of rate hikes. It has hinted at another couple of rate hikes this year itself. That may be essential with the rising spectre of inflation but could also mean that the cost of funds would go up for Indian companies and profit margins and solvency ratios of Indian companies would be negatively impacted. 
   
    
2. The early signals from the Q4FY23 results also point out that not all are hunky dory. Cement and IT are facing operating cost pressures while consumer-facing sectors like FMCG are facing a serious dent in rural demand. Also, a lot of banking profits are coming from the lag effect of deposits not catching up, but that may not be sustainable. 
   
    
3. At the global level, there are some key concerns too. Central banks are still hawkish and further rate hikes look to be on the cards. Also, the banking crisis is getting worse, with the First Republic Bank folding up in the latest default. Also, the US is facing a growth crisis with first-quarter growth falling all the way to 1.1%. To top it all, OPEC is adamant about hiking the prices of crude by cutting supplies. That is not great news for India as it depends on imports for 85% of its crude needs. 

April 2023 was a robust month where the markets have chosen to ignore most of the headwinds. Probably, the markets may not be so charitable in the coming months.

Content source: NSE and NSDL