Macro-economic indicators

  • Retail inflation (which includes the price of food, fuel, electricity, etc.) for January 2023 came in higher at 6.52% as against the previous month’s 5.72% due to a sharp increase in cereal prices
  • The total loan book of all the banks in India increased by 16.1%, much higher than their deposit growth of 10.2%
MACRO DATA February 28, 2023 1-Month 1-Year
USD/INR 82.67 81.92 75.34
Brent Oil ($/bl) 83.89 84.49 100.99
Retail Inflation (CPI) 6.52% (January) 5.72% 6.01%
MARKET RATES February 28, 2023 1-Month % Change 1-Year % Change
10 year Government Bond Yield 7.43% 0.09% 0.67%
10 Year AAA Corporate Bond Yield 7.81% 0.07% 0.70%
Bond market index 4,120.09 0.26% 2.96%

Market Review

European Central Bank (ECB) raised its policy rate by 50 bps to 2.50%. Bank of England also raised its policy rate by 50 bps to 4.00%. Inflation remains a concern globally as central banks across the globe continue with rate hikes. Crude prices continue to trade closer to ₹ 84/- per bbl. Rupee continues to be range bound against the dollar over the last one month and is currently in the range of ₹ 82/- - ₹ 83/-.

RBI raised the policy repo rate by 25 bps to 6.50% in the February 2023 policy to keep inflation under check. Core Inflation (excluding food and fuel inflation) of 6.1% still remains above the RBI tolerance band of 2% - 6%.


  • We are ‘Neutral’ on the bond markets from a medium-term perspective. Bond yields are likely to be range-bound taking cues from the movements in global bond yields, crude prices and exchange rate movements. We expect RBI to raise the policy repo rate by 25 bps thereby taking the terminal repo rate to 6.75%. Further rate hikes by RBI, if any, will remain data dependent

Exhibit A: GoI borrowing rate for 10 year

Security Yield

EQUITY INDICES February 28, 2023 1-Month % Change 1-Year % Change 3-Year % Change 5-Year % Change
Nifty 17,304 -2.0% 3.0% 15.6% 10.5%
BSE 100 17,538 -2.2% 2.9% 15.8% 10.1%
Returns of more than 1 year have been annualised


Nifty was down 2.0% for the month of February 2023:

  • Global macro challenges and a strong US economy leading to higher rate expectations
  • Corporate results indicate some slowdown in discretionary demand
  • Capital Goods/Consumer sector outperformed the market while Metals and Minerals/Infrastructure were the key underperforming sector


Our outlook remains Neutral in the a short term and Positive in the medium term. Slowing global growth, higher interest rates and slowdown in discretionary demand are negatives. Broader markets could see some corrections as earnings growth normalises. Additionally, in the short term, FII and DII flows could continue to moderate. We note that the Nifty Valuation at FY2024E PER of ~18X, are in line with 10 year average.

In the medium term, we expect certain important drivers for growth:

  • Pro-growth budget likely to give impetus to capital expenditure
  • India remains the highest-growth market in a growth-starved world

Earnings expectations are robust for FY2023 and FY2024 (with the forecasters building in a ~13% CAGR in Nifty EPS).

Equity Insights: Consumption in India is likely to be driven by discretionary spending over the next decade

Increase in the affluent and middle class to drive consumption in India; India to add Mexico + Indonesia in the current decade

Security Yield

*Annual household income at 2020-21 prices Source: ICE360, The Rise of India’s Middle Class, population in million Note: Household income per annum in 2020-21 prices by household income: Rich >3mn, Middle Class (0.5-3mn) Aspirers (0.125-0.5mn), Destitutes (<0.125mn

  • Potential growth at the top end is staggering, with the Rich (average per capita income of ~$12,000) compounding at a CAGR of 12% over the upcoming decade, adding ~113 million people with exceptionally high purchasing power.
  • If we were to make a comparison, at the very top end, India will add the consumption equivalent of Mexico (population of 126million, with per capita of ₹ 10,000
  • In the middle class, India is likely to add the consumption equivalent of Indonesia (population 273 million with per capita income of ~$4,300).
  • If we look at the upcoming purchasing power of the Middle Class & the Rich, India will add ~400 million people with per capita income and INR 3.5 lakh (~4,500 per capita) to Indian and global consumption

57% of total household will be part of Rich or Middle Class in FY31E, up from 33% in FY21

Security Yield

65% of consumption is driven by the Rich and Middle Class in FY21

Source: ICE360 insights, Investec Securities estimates. Based on 2020-21 annual household income levels


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