Indian Economy share price target

Both core CPI inflation (4.7% YoY) and the Fed’s preferred inflation gauge, core PCE (+4.1% YoY) remain more than double the Fed’s target, precluding any near-term easing of monetary policy. Instead, with public debt above 120% of GDP, the fiscal deficit (8.6% of GDP in the year to Jun’23) is likely to place upward pressure on bond yields through the rest of CY23.

July 2023 saw some mixed macroeconomic changes, with Wholesale Price Index (WPI) inflation contracting, and Consumer Price Index (CPI) inflation rising.

Unemployment rates fell, while Foreign Institutional Investment (FII) inflows surged. Crude oil prices increased, while consumption has declined.

The surge in headline CPI inflation to 7.44% YoY in Jul’23 is undoubtedly a jolt, but core inflation actually abated to less than 5% YoY for the first time in 39 months, with inflation receding across the entire spectrum of non-food categories. Vegetable inflation (+37.3% YoY in Jul’23) needs supply-side measures to improve distribution, and the steps already taken in the past month have helped rein-in vegetable inflation in Aug’23.

The Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% for the third consecutive meeting, citing the fact that CPI inflation remained inside its 2-6% targeted range. However, it retained a hawkish stance of “withdrawal of accommodation” as food (especially vegetable) inflation was set to push CPI inflation up to 6.2% YoY in Q2CY23.

The current account deficit (CAD) is likely to have shrunk to USD3.5bn (0.4% of GDP) in Q1FY24, with the services trade surplus widening by USD5.32bn YoY, while the merchandise trade deficit declined by US$5bn YoY. Given that the first two quarters of a fiscal year are seasonally weaker, the sharp YoY decline in CAD (which is likely to persist into Q2FY24 as import prices of crude oil, coal, fertiliser and edible oil are down sharply YoY) is likely to result in a small current account surplus in FY24.

The aggregate profit pool estimate of ~600 stocks for FY24 currently stands at INR 12.75trn as compared to INR 13.3trn a year ago. The 4% downgrade to aggregate profit pool appears reasonable given the shocks such as the massive QT cycle, Russia Ukraine war and banking crisis in DMs.

India’s goods exports declined 15.1% YoY in Apr-Jun’23 (Q1FY24), succumbing to the slump in global import demand from the US, EU and China. Goods imports declined 12.7% YoY in Q1FY24, and this caused the quarterly trade deficit to shrink 7.9% YoY to US$57.6bn.