To compound the problems, the FPIs sold another $647 million of equities in February, over and above the $3.52 billion it sold in the month of January 2023. However, it was not just the FPI selling but even the global cues were not too favourable. But more of that later. Firstly, here is a quick look at key index returns for February 2023.
Sector / Index | February 2023 Returns (%) |
Mid Cap Index | -1.82% |
Nifty 50 Index | -2.03% |
Small Cap Index | -3.64% |
There was selling across the board in February, with the smaller stocks the worst hit as the quarterly results were under a lot of pressure in the third quarter ended December 2022. While the sales growth was strong overall, the margins came under pressure. But, first a look at the international triggers bothering the markets.
Global macros take a toll on the market
Global triggers for the market were centred on two fronts. Firstly, there was pressure from the hawkishness of the US Fed. The Fed did raise rates by just about 25 basis points in the February meeting of the Federal Reserve. However, what really spooked the markets was the subsequent statements of the Fed governors and the minutes of the FOMC meeting published on 22nds February. The minutes made it crystal clear that irrespective of the quantum of rate hikes already undertaken (450 bps since March 2022), the rate hikes would continue till inflation remained a problem. In fact, the minutes of the Federal Open Markets Committee (FOMC) not only hinted at more rate hikes in the year 2023, but also ruled out any rate cuts in the year and also hinted at terminal rates in the range of 5.50% to 5.75%.
The global hawkishness also had an impact on the stance of the RBI, which also turned distinctly hawkish. But the bigger concern was the impact of weakness in global demand. To begin with, the corporate results for the third quarter clearly showed signs of export sales waning across various sectors. In addition, the export data faltered at a macro level showing that global companies and importers were going slow on consumption and inventory accumulation decisions. With the Fed hinting at more rate hikes, it is likely to raise the inflation expectations globally, and this is likely to be the story across the developed markets like the US, UK and even Europe. Clearly, the global slowdown appears to be a much bigger challenge for the Indian markets, and that translated into index weakness.
Domestic triggers impacting equity markets in
While the global factors did play a part in depressing the stock markets in February 2023, domestic factors also played a major part.
Union Budget 2023-24 did have some positives in putting more money in the hands of people, checking the fiscal deficit for FY24 and also the big thrust to capital spending and infrastructure outlays. However, markets are currently reflecting short term concerns, and these are not going away in a hurry.
Sectors that flattered and those that faltered in February 2023
The month of January 2023 saw a very diverse performance of sectors. Of the 16 sectors evaluated, only 2 sectors (FMCG and Digital) showed positive gains. All the other sectors gave negative returns.
Sector / Index | February 2023 Returns (%) |
FMCG | 1.09% |
Digital | 0.22% |
Information Technology (IT) | -0.26% |
Private Banks | -0.69% |
Consumer Durables | -0.71% |
Infrastructure | -0.88% |
Defence | -2.99% |
Logistics | -3.91% |
Automobiles | -4.44% |
Realty | -4.46% |
Pharmaceuticals | -4.96% |
Housing | -5.11% |
Commodities | -5.78% |
Oil & Gas | -8.50% |
PSU Banks | -8.69% |
Metals | -18.54% |
Data Source: NSE (shaded sectors outperformed Nifty-50)
Clearly, the negative returns are outweighing the positive returns, but there are 6 out of 16 sectors that outperformed the Nifty.
To sum up the story of February 2023, the markets started off on a strong note with the Union Budget, but it was a rude return to reality. Fears of a global slowdown, sustained hawkishness of central banks, rising inflation and weak quarterly numbers were the key pressure points that the stock markets had to contend with during the month.
The month of February 2023 was another disappointing month for the markets as the fall in the Nifty continued.