Emerging markets beat developed markets in May; India shines on a five-year rolling-return basis: Motilal Oswal
3 min read 07 Jun 2023, 02:20 PM ISTThe Nifty gained 2.6 per cent MoM in May 2023, with the Nifty Midcap 100 and the Nifty Smallcap 100 outperforming the Nifty50. FIIs remained net buyers for the third straight month at $5bn in May, while DIIs turned net sellers.
PremiumMost emerging markets (EMs), including Taiwan, South Korea, Brazil and India clocked healthy gains in the month of May, outperforming some of the top developed markets (DMs) including France, the UK and Germany.
Brokerage firm Motilal Oswal Financial Services highlighted that the MSCI India index recovered sharply in May, however, it remained flat since January 2022.
"Among the key global markets, Japan (up 7 per cent), Taiwan (up 6 per cent), Brazil (up 4 per cent), Korea (up 3 per cent), India (up 3 per cent), Russia (up 2 per cent), and the US (0 per cent) ended higher in May 2023, while the UK (down 5 per cent), Indonesia (down 4 per cent), China (down 4 per cent), and MSCI EM (down 2 per cent) ended lower in local currency terms," Motilal Oswal said.
"Over the last 12 months, the MSCI India index (up 7 per cent) has outperformed the MSCI EM index (down 11 per cent). Over the last 10 years, it has outperformed the MSCI EM index by 173 per cent," Motilal Oswal said.
"While the US markets topped, India ranked second on a five-year rolling-return basis. FII (foreign institutional investors) flows remained positive for three months in a row but DIIs (domestic institutional investors) remained net sellers. The 10-year yield spread between India and the US is at its lowest since June 2009," said Motilal Oswal.
The Nifty gained 2.6 per cent month-on-month (MoM) in May 2023, closing higher for the third consecutive month. Till May, the benchmark index is up 2.4 per cent in the current calendar year. The Nifty Midcap 100 (up 6.2 per cent MoM) and the Nifty Smallcap 100 (up 5.1 per cent MoM) outperformed the Nifty50 in May.
Motilal underscored FIIs remained net buyers for the third straight month at $5 billion in May’23 (highest since September 2022); Year-to-date (YTD) inflows stood at $4.4 billion. DIIs turned net sellers in May’23 at $0.4 billion, with YTD inflows at $10 billion.
Automobiles (up 8 per cent), Real Estate (up 8 per cent), Consumer (up 7 per cent), Technology (up 6 per cent), and Telecom (up 4 per cent) were the top gainers, while PSU Banks (down 3 per cent) was the only laggard, Motilal Oswal said.
The brokerage firm observed that the Nifty ended FY23 with 11 per cent earnings per share (EPS) growth on a high base of 34 per cent growth in FY22.
"Earnings, though, remained lopsided, with BFSI driving almost entire incremental earnings in FY23. With healthy macros, range-bound oil prices, a robust fiscal balance sheet and moderating inflation, the outlook for the market looks optimistic," Motilal Oswal said.
The brokerage firm pointed out that in contrast to the market consensus of 5 per cent growth and our forecast of 5.3 per cent growth, India's real GDP growth surprised with a 6.1 per cent print in Q4FY23. As a result, FY23 growth came in at 7.2 per cent, beating the consensus of 7 per cent. On the expenditure side, investments and external trade provided a cushion to real GDP growth. However, Motilal said weak consumption growth and lower savings are worrisome.
"We maintain our 'overweight' stance on financials, capex, autos and consumption. In our model portfolio, we are 'neutral' on IT and healthcare and 'underweight' on metals, energy and utilities," said Motilal Oswal.
ICICI Bank, ITC, Larsen & Toubro, Mahindra & Mahindra, HCL Tech, Ultratech and ONGC are the top picks of Motilal Oswal from the large-cap space while Ashok Leyland, Vedant Fashion, Metro Brands, Mahindra & Mahindra Financial Services, APL Apollo, Godrej Properties, and Lemon Tree are the top picks from the mid and small-cap space.
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Disclaimer: The views and recommendations given in this article are those of the brokerage firm. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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