Home » Equity Markets & Economy Outlook for PMS / Investment Advisory Clients – Early June 2023

Equity Markets & Economy Outlook for PMS / Investment Advisory Clients – Early June 2023

Global Economic Uncertainties and Recovery: An Overview

Amid a global landscape steeped in uncertainties, economic predictions, and emerging signs of recovery, the picture remains complex. The US economy shows a sparkle of promise, mitigating recession fears. Although inflation has not been completely arrested, its subdued rates kindle hope for a standstill in interest rate hikes. endangering global financial stability. Recent statistics indicate that US GDP ascended at an annual rate of 1.6% in Q1 2023, coming on the heels of a modest 0.9% climb in Q4 2022. Encouragingly, inflation plummeted to 4% in May 2023, marking the lowest level since 2021. Nevertheless, the specter of a US banking crisis looms large, endangering global financial stability.

The impending US banking crisis trails the fallout of several key banks in the aftermath of the subprime mortgage crisis, shaking the foundations of trust in the banking system and precipitating a slump in lending. While this crisis might trigger a liquidity influx into the system, central banks are expected to proceed with caution to ward off another inflationary whirlwind.

Meanwhile, China’s economic engine, spurred by the government’s robust fiscal stimulus and the relaxation of Covid-19 restrictions, is revving up. It clocked an annual growth of 4.5% in the first quarter of 2023, a leap from 2.9% in the previous quarter of 2022. However, persistent frictions in US-China relations over trade disagreements and military competitiveness in the South China Sea pose potential threats to the global, and more particularly, Indian economy.

Europe remains in the throes of challenges, with interest rate increments failing to rein in inflation. The European economy exhibited a tepid annual growth of 1% in Q1 2023, a sizeable drop from 1.7% in Q4 2022.

India’s Economic Momentum: Positive Indicators and Potential Obstacles

In contrast, India stands as a beacon of resilience amidst global turbulence, with a host of positive economic markers. Record GST revenue, an ascendant Manufacturing PMI, unprecedented coal production, escalating fuel demand, credit growth, and declining crude prices all underline India’s consistent stride toward economic expansion. The Indian economy registered a 6.1% Y-O-Y growth in Q1 2023, a surge from 4.4% Y-O-Y in Q4 2022, coupled with subdued inflation rates of 4.25% in May 2023, a record low since 2021.

A panoramic review of corporate earnings reveals robust Corporate Balance Sheets, with falling input costs driving up margins and profitability. In addition, the favorable blend of low inflation, diminished likelihood of interest rate hikes, a steady exchange rate, increased FII inflows, and Government capex paint an optimistic picture for the Indian economy.

However, India’s economic ascent is not devoid of hurdles. Indo-China relations, marred by territorial disagreements and China’s aggressive naval posturing in the Indian Ocean, may potentially dampen India’s economic prospects. Moreover, the potential shortfall of rains in the monsoon season could stifle burgeoning consumer demand, especially in the rural hinterlands. Political unpredictability in the run-up to the elections might prompt a temporary investor restraint. 


Nevertheless, the prospect of political stability post-elections could provide a shot in the arm for market sentiment.. Long-term investors can continue to hold a portfolio of quality stocks without being overly concerned about temporary market volatility.

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