Inflation, growth to dictate market moves

The performance of the Indian stock market over the next few months will depend on the trajectory of domestic and global inflation, say analysts.

"Data showing peaking of inflation could put a cap on bond yields and a floor on equity valuations but data showing further increase in inflation leading to higher-for-longer inflation expectations may result in further increase in bond yields and correction in markets. We expect inflation in India to trend down sharply in H2FY23 on high base effects but note upside risks to inflation from higher-than-expected domestic food prices and global fuel prices," said a Kotak Securities report.

The adverse macroeconomic backdrop with heightened worries on rising interest rates,elevated crude oil prices and liquidity tightening has kept the market volatile and jittery.

The domestic Q4 earnings season was mixed with companies facing challenges on multiple fronts.

"Among the major sectors, private banks, consumer, NBFCs, metals, automobiles, and capital goods reported higherthan-estimated profit after tax (PAT) growth, while oil & gas, healthcare, PSU banks, and consumer durables reported PAT below our estimates. Technology and cement’s profits were in line with our estimates in 4QFY22," said Motilal Oswal Financial Services.

Analysts expect the full impact of elevated input costs to be felt in the first half of FY23 as the fourth quarter of FY22 had some benefits of lower raw material inventory.

In the medium to long term, earnings delivery is crucial for markets to hold, in an adverse milieu of volatile and challenging macroeconomic situations.

DSP Investment Managers that operates DSP Mutual Fund said "It is potentially a good time to buy businesses benefitting from domestic growth".

"Global and domestic growth is diverging: domestic growth looks strong while global growth is weakening. Central banks are raising interest rates but it may not go too far...Focus on local over global,” it said in a report.