India Equities - The Gridlock Intensifies: Dolat Capital

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Dolat Capital Report

In our earlier note, we had laid three scenarios with varying probabilities that the India and Global Equities were grappling with for CY23. We had assigned the highest probability to a scenario of 'R-I' which means recession with declining inflation. Last couple of months has shown that we live in an age of perfect uncertainty.

India inflation data ‘disappointed’ with a reading much higher than the consensus although the post release analysis seems to suggest data inconsistency.

Earnings trajectory continues to be tad disappointing with continued margin pressures and muted demand. The earnings growth estimates are now veering towards low double-digit levels and turning out to be increasingly vulnerable.

The Monetary Policy Committee will now likely consider another hike in April meeting which was earlier a pause in our base case. With that, the lending rates will be higher than what we believe is the red line for mortgages and durables.

Globally too, the headwinds continued to take toll on the sentiments with stronger labor markets in the U.S. leading to higher than expected non-farm payrolls, slowing disinflation, strong retail sales and Purchasing Manager's Index services. The buoyant reaction function of the market seems to have rolled back. The terminal rate for fed fund has moved towards 5.40% (versus earlier expectation of sub 5%).

The narrative has clearly solidified towards ‘higher for longer’ and hence the investor sentiment going ‘risk off’. This has led to dollar Index moving higher, corrections in equities and commodities and rise in bond yields.

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