FII buying support has been a major driver of the current rally. Extended FII support will remain key as a reversal could diffuse the rally unless DIIs fill in the void.
Most companies have announced first-quarter results, which at best were mixed. While revenue was on the upswing, margins were squeezed due to cost inflation. However, corporates appear well-placed to absorb higher costs.
Domestic GDP has posted 13.5% growth over the April-June 2022 quarter, owing to favorable base effect and spike in consumption from easing of pandemic restrictions as also a pick-up in services industry and investment.
However, post April-June 2022 economic growth prospects are not as bright since domestic consumption will likely not be robust enough to drive growth further, given unemployment remains high and real wages are at all-time lows.
With no plan to boost consumption to a higher level (instead of relying on pent up demand, which is transient) domestic growth will struggle to break out - it is still below its pre-pandemic level. Deficient rains and an uneven kharif crop harvest have taken a toll on consumption in August, according to some estimates.