Macro-economic indicators

  • Retail inflation (which includes the price of food, fuel, electricity, etc.) for July 2023 came in significantly higher at 7.44% as against the previous month’s 4.81%
  • The total loan book of banks continues to witness strong growth at 19.7%, higher than the deposit growth of 13.5%
MACRO DATA August 31, 2023 1-Month 1-Year
USD/INR 82.79 82.25 79.46
Brent Oil ($/bl) 86.86 85.56 99.31
Retail Inflation (CPI) 7.44% (Aug) 4.81% 6.71%
MARKET RATES August 31, 2023 1-Month % Change 1-Year % Change
10 year Government Bond Yield 7.16% -0.01% -0.03%
10 Year AAA Corporate Bond Yield 7.60% 0.07% 0.18%
Bond market index 4,304.54 0.60% 6.92%

Market Review

  • India July CPI came in at 7.44%, much higher than the market expectation on account of a jump in vegetable prices, particularly tomatoes. Of the 2.63% increase in headline inflation, 2.31% was on account of vegetables, of which 1.35% was due to tomatoes alone
  • RBI kept the policy repo rate unchanged at 6.50% in the August policy meeting and decided to exercise patience and look through the seasonal rise in vegetable prices, deeming it to be temporary in nature. RBI governor although cautioned that if the high prices show signs of persistence, then they will have to act accordingly - thus the current policy decision could be characterised as a “hawkish pause”
  • RBI announced an incremental cash reserve ratio (I-CRR) of 10% on the increase in net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023. This measure is intended to absorb the surplus liquidity generated by various factors, including the return of ₹ 2,000 notes to the banking system. RBI made it clear that this is purely a temporary measure for managing the liquidity and will be reviewed on September 8, 2023 with a view to returning the funds to the banking system ahead of the festival season


  • We remain ‘neutral’ on the outlook for bond markets from a medium-term perspective. The onset of EI Nino led to a record rainfall deficit in the month of August which is likely to impact crop yields and food inflation. Despite the spike in retail inflation during the current quarter, we expect RBI to hold rates in the forthcoming policy meeting and continue to keep the system liquidity tight. RBI is likely to keep a close watch on the evolving monsoons with the Indian Meteorological Department (IMD) expecting September rainfall to be at par. Markets likely to take cues from global monetary policy actions.

India 10 year benchmark yield

Security Yield

EQUITY INDICES August 31, 2023 1-Month % Change 1-Year % Change 3-Year % Change 5-Year % Change
Nifty 19,435 -2.5% 8.4% 19.1% 10.5%
BSE 100 19,936 -2.0% 8.4% 19.8% 10.5%
Returns of more than 1 year have been annualised


Nifty was down 2.5% for the month of August 2023:

  • Global factors coupled with high domestic inflation print led to the market decline
  • FIIs were net buyers in the month of August 2023 to the tune of $1.6bn while DIIs turned net buyer to the tune of $3.0bn
  • Finance/Technology sector outperformed the market while Oil & Gas/Bank were the key underperforming sectors


Our outlook remains Neutral in the short term and Positive in the medium term. Demand trends remain healthy for credit and capex linked sectors. High inflation could weigh on recovery in consumption demand. Additionally, the sharp runup in mid and small caps has made valuations richer. We note that the Nifty Valuations at FY24E PER is at 20X

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

  • Resilient domestic macro environment relative to most major economies
  • Higher growth potential in India led by demographics benefits, formalisation of the economy with increased digitalisation and ongoing reforms

Earnings expectations are robust for FY2024 and FY2025 (with the forecasters building in a ~16% CAGR in Nifty EPS)

Insights corner:

Sir John Templeton, famously said, “Bull markets are born out of pessimism, grown around skepticism, mature on optimism, and die in euphoria.”

Euphoria and panic are the two fundamental phases where the most exponential returns are made in the stock market. Why you ask? You need panic to accumulate the franchises you like most and which you think have the highest longevity, and you use euphoria to get out of the mistakes you have made in the other phases of market.

Fear and greed, they say, are the two emotions on which the stock market operates, and these emotions are what governs the phases of the market. Warren Buffet once said, “Be fearful when others are being greedy, and greedy when others are fearful.” That ideally should be the only mantra of an investor, but things are more complicated than this, you would say. Well, we can agree and disagree here.

While fear and greed coexist at all given points in the markets, the dichotomy today is that the degree of fear and greed existing at the same time is unparalleled.

Nifty has gone nowhere in the last 3 months while the small cap indices have been hitting an all-time high almost every day, fueled by massive euphoria in the small cap names.

Now how do we manage such a situation becomes a major question. The navigation this time is going to be a challenging one, but, it is said that true leaders emerge when the right challenge comes. To navigate situations like these we only must take care of two things and the rest will take care of itself:

  • Keeping your emotions in check – don’t go into an overdrive on either side of the spectrum
  • Keep investing because that is what pays off in the long run


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