The recent market movements were characterized by sharp swings and record highs, creating a FOMO for those on the side-lines. However, it is crucial to take a closer look at the current market landscape and approach investment decisions with caution and selectivity.
Examining the latest earnings update of the Nifty 50 companies, it becomes evident that earnings growth is not uniformly distributed across sectors. In Q4FY23, despite an 8% increase in top-line figures, the aggregate EPS growth of the Nifty 50 companies remained almost flat. Notably, when excluding the banking and financial companies from the Nifty 50 basket, EPS growth actually declined by 5% during the same period. Sectors such as Metals, IT, Power, and Industrials experienced downgrades.
On a macroeconomic level, India’s GDP growth reached 7.2% for the full year, yet the manufacturing sector struggled, showing a mere 1.3% growth. In the fourth quarter of FY23, there was a better-than-expected rebound in real GDP, primarily driven by atypical government spending. However, the private sector, comprising households and corporations, exhibited subdued growth, indicating a K-shaped recovery.
While there is some cheer about the US CPI inflation’s fall from recent high of 9.1% to 4.1%, the core inflation remains at 5.30%, highlighting the ongoing challenges faced by central banks worldwide.
In light of these market dynamics, it is crucial for equity investors to exercise caution and adopt a prudent approach. While the market may continue its upward trajectory, seemingly promising quick gains, it is essential to recognize that surface-level growth does not necessarily reflect underlying realities.
During these uncertain times, we strongly advise being selective and diligent in making investment decisions. Instead of succumbing to the exuberance of the current market environment, we encourage you to invest with caution.