After a couple of months of frenzied buying in domestic equities, the month of August finally witnessed some amount of consolidation in the equity markets as both the benchmark indices, the Sensex and the Nifty 50, lost 2.5% for the month each. What sparked off the selling was the downgrade of the credit rating of the US by one notch to AA+ by a major global rating agency. Although the RBI MPC kept the key repo rate unchanged, it did impose an incremental cash reserve ratio (ICRR) in order to absorb excess liquidity in the banking system. As a result, sectorally, Banks were among the worst hit for the month along with Oil & Gas and Metals. On the other hand, sectors that outperformed included Consumer Durables, IT and Telecom. FIIs continued their buying spree with a net investment figure of ^~USD 1.5 bn .

The S&P Global India Composite PMI fell to 60.9 in August 2023, slightly slowing from a record of 61.9 in the previous month but logging as one of strongest expansions in over twelve years. New orders continued to rise, extending the ongoing period of growth to just over two years, but easing compared to July. Nevertheless, new orders growth remained robust and was one of the best seen since mid-2010. On prices, input costs were little-changed from a month earlier, as an acceleration in the manufacturing sector was more than offset by a slowdown in the service economy. Meanwhile, output charges picked up midway through the second fiscal quarter, with the service providers posting a faster rate of increase

CPI inflation in July surged to 7.4% (June: 4.8%) and increased 2.9% MoM (June: 1.1% MoM). The sequential increase was led by vegetables (mainly tomatoes, onions, spinach, brinjal, garlic, green chilies and okra). Vegetables, as a whole, contributed to nearly 32% of CPI inflation. Apart from vegetables, cereals (mainly rice), pulses, and spices (mainly jeera) contributed to the sequential surge. The core inflation (CPI, excluding food and fuel) moderated 22 bps to 4.9% (June: 5.12%). However, CPI inflation, excluding vegetables, was at 5.4% (only 20 bps higher than June). . Core WPI inflation (manufactured products excluding food products) was at -2.1%. Headline WPI for July continued to decline by -1.4% vs -4.1% in June, but with a MoM spike of 1.9% led by food articles, specifically vegetables (+81% MoM and 62% YoY).

In the fixed income market, government bond yields remained range bound for the second consecutive month. Some of the initial gains post a benign monetary policy review by the RBI MPC were negated by the increase in supply in the secondary market from the weekly government bond auction. The benchmark 10 year Gsec yield remained almost flat at 7.17%. Corporate bond spreads largely contracted across shorter maturities while remaining flat for longer maturities.

Markets in September have recovered from the selling seen in August and the first few days of the month have seen the benchmark indices scaling new highs, with the Nifty 50 crossing the psychologically important figure of 20,000. The Indian GDP for 1QFY24 came in at an encouraging 7.8%, which helped bolster market sentiments. Mid and small caps have led this recent rally in the market with the larger cap stocks looking to play catch up

Regards,

Investment team