Financial Planning

Market Outlook – March 2022

It’s a War Time… Russia attacked Ukraine and the entire world markets went for a toss. Dollar, Oil, Gold, all shoot-up, and the world markets crashed. Nifty is now trading around 16500, 2100 points lower from its all-time peak. Nifty has corrected 11%, Large Cap Index 11%, Mid Cap Index 15% & Small Cap Index 15%. Nifty PE is trading at around 21.35, from a high of 41 in March 2021, indicating a hefty correction valuation wise.

Key Events in March 2022:

  • Duration of Russia-Ukraine War; longer the period, longer it will take to recover.
  • High Crude Oil prices to fuel inflation; negative for markets, as RBI will be forced to hike rates.
  • Any Setback for ruling party (BJP) in UP elections; will further open downside for markets.
  • Fed Policy meet on 15th March; any rate hikes will be negative for markets.
  • LIC IPO is due this month; if postponed, will be a big relief for the market, as liquidity will not be squeezed by this IPO.

Historically, markets shoot-up on an average 25% whenever such war-type event ends. Only negative for India from this war is the high crude oil prices, whereas on the positive side this is a golden opportunity for India to take over China in manufacturing and other sectors as FIIs will be hesitant to park any money in China as it is threatening the world over Taiwan. India is the safest country in Asia or Emerging markets to park money at present.

The growing retail participation in Indian markets has also not allowed markets to fall heavily despite FIIs being consistent sellers.

Therefore, start accumulating on any dips, as markets will not remain lower for long and will pull back as soon as this crisis ends. We expect max another 1000 points correction in Nifty from here, i.e., 15500. There is a good buying opportunity below 16K levels. One can look at moving debt allocation to equity, the moment Nifty breaches 16K levels. Also, one can look at equity participation on fresh funds, on a minimum one-year investment horizon as well.
Speak to your Advisor for details & guidance.

Market Outlook – Feb 2022

No Bad News = Good News!!

The Union Budget 2022 was presented on 1st Feb’22 amid high expectations. Although the Economic Survey forecasted 9.2% real GDP growth in FY22, followed by 8-8.5% growth in FY23, the markets were anticipating that the government would announce measures to support weak consumption. Instead, the government continued on its course to improve the quality of its expenditure by focusing on investment growth.

Budget has been announced amid a positive backdrop of a sharp economic recovery from the pandemic lows as well as a buoyant capital market. The backdrop, however, has turned more challenging in the recent past with the US Fed and other Central Banks shifting their focuses towards containing inflation. Consequently, the prevailing easy liquidity along with the low interest regime is on the last lap now and equity markets have, naturally, turned topsy-turvy.

However, the budget presented by the Honourable Finance Minister (FM) has demonstrated continuity as it has built on the last year’s budget announcements. Growth revival remained the principal theme of the budget. With this objective in mind, the government has largely continued with its focus of:

a) driving capital expenditure (capex) by enhancing gross budgetary supports for roadways, railways and defence sectors, and 

b) propelling the manufacturing sector through PLI schemes, while transitioning the economy with an emphasis on urban planning, logistics, EV’s, solar module manufacturing, river linking, water connections, etc.

The FM has also focused on using PM Gati Shakti that was announced in Oct’21 to dismantle silos within the government for seamless building of infrastructure projects and improving the ease of doing business. Resisting the temptation of populist giveaways ahead of the five state elections in Feb-Mar’22, the government has largely remained on track with a focus on long term structural growth drivers. Fiscal deficit is expected to moderate to 6.4% in FY23 BE from 6.9% in FY22 RE. 

Overall from an equity market perspective, we believe the budget, on balance, has no unpleasant surprises, while there remains some room for further capex/spending push as the government is likely to overshoot its revenue targets. While there could be some disappointments on the absence of measures to improve consumption, economic recovery in FY23 coupled with vaccination progress would continue to drive demand recovery ahead. 

Crude prices around USD90/bbl will present a challenge for inflation ahead and act as a risk for fiscal maths. Given the continuity of policy focus and pronouncements, we believe markets will discount the budget and shift focus to: 

a) rising interest rate regime globally and consequent higher bond yields and 

b) corporate earnings growth that has remained resilient so far in the ongoing 3QFY22 earnings season. 

The forthcoming RBI policy meet on 9th Feb’22 assume greater significance now with respect to the future of liquidity and interest rates. Valuations are slightly rich with Nifty trading at 20x FY23E EPS and thus the corporate earnings delivery becomes highly crucial, more so in a rising rate regime. 

Mkt Outlook Feb 2022:

  1. Nifty is still trading 1000 pts lower from its all-time peak.
  2. Q3 results are till now matching expectations and crucial for market which are trading on high valuations.
  3. RBI Policy on 9th March. Central Bank will declare path on increasing rates due to persistent inflation and overall economic recovery. Negative for market.
  4. LIC IPO will hit the market by Feb-end with a staggering issue size of 75,000 Cr, the largest till date. Market may correct as it will suck huge liquidity from the system.
  5. Crucial state election results (mainly UP) on March 10th. If BJP does not win or wins with small majority, it will be negative for the market.

Hence be prepared for a volatile month. Nifty may test 16400 its support level in case of any above negative news. But good corporate results will keep downside capped and should be used as a buying opportunity.

Since investments in international funds have been stopped temporarily due to overall industry limit of $7 Billion set by SEBI has been reached. SEBI is soon going to raise this limit, till that time no new investments will be allowed in these schemes. Nothing to worry as this is normal checks & balances from SEBI. Hence allocation in international segment will be nil for this month.

Market Outlook – Jan 2022

Recap 2021:

  1. Nifty & Sensex jumped 24% & 22% respectively. 
  2. Large Cap generated 26% returns, Mid Cap 36% & Small Caps 57%.
  3. During CY2021, market rally was broad based unlike 2020.
  4. Most economies clocked in positive returns for the year due to reduction in COVID cases, stimulus measures & release of pent-up demand.
  5. Central Banks paused further rate cuts & speeding up tapering program.
  6. Emerging & Developed Countries are witnessing a high inflation.
  7. Corporate Balance Sheets appear to be healthy given rise in profits and decline in Debt over the last 2 years.
  8. 5x jump in the middle-income bracket (people crossing $2000 per capita income mark) in last 6 years.
  9. Supportive Govt. Policies – PLI Scheme, Insolvency & Bankruptcy Code, Consolidation of PSU Banks, Land Reforms, Make in India.
  10. Retail investors participation in direct equity jumped to a new high. Average 26 lakhs new Dmat accounts were added in 2021. 
  11. There was a surge in new companies tapping markets through IPOs. Total 63 companies collectively raised 1.18 Lakh Cr in 2021.

Outlook 2022:

  1. Omicron threat has subsided as it is milder in nature and hospitalisation cases will be lesser.
  2. Equity markets will perform well but will be volatile due to changing macros and high valuations.
  3. Central Banks will be increasing rates due to persistent inflation and overall economic recovery.
  4. Increased vaccinations and launch of new breakthrough drugs may see an end of Covid in 2022.
  5. Crucial state election results (mainly UP) will decide the future of Modi Govt.

Avoid Investing Mistakes 2022:

  1. Not giving due respect to valuations & investing blindly with flow of markets.
  2. Not following asset allocation model for investing.
  3. Investing based on last 2 years bullish returns.
  4. Investing in IPOs without understanding the business.
  5. Not opting for Debt as a capital preservation tool.

Important events that will affect markets in Jan 2022: 

  1. Quarter 3 results will be announced this month, expected to be in-line with expectations.
  2. Omicron spread and its impact in coming days will be keenly watched.
  3. 16500 Cr worth IPOs lined up in January 2022. Adani Wilmar, Ruchi Soya & Go Airlines among the big ones.
  4. Budget to be presented on 1st Feb, 2022.

Market Outlook – Dec 2021

Nifty & Sensex corrected 9% each, due to Omicron fears worldwide, but recovered 3% each as news of new virus being milder and not lethal emerged. Nifty PE is trading at 23.7 as compared to 28.17, as the profit booking helped high valuations cool-off.

RBI Policy was announced today, and the status quo was maintained. The MPC also maintained “accommodative” stance. CPI inflation is projected at 5.3% in 2021-22. This consists of 5.1% in Q3, and 5.7% in Q4 with risk broadly balanced. RBI Governor said central bank would continue to manage liquidity in a manner to maintain financial stability.

Important events that will affect markets in December: 

  • Fed Policy meet on 16th December. Decision on increasing tapering speed and earlier raising of Interest rates in 2022 will be discussed. 
  • Omicron spread and its impact in coming days will be keenly watched.
  • 25000 Crore worth IPOs lined up in December.
  • Bill to regulate crypto currency will be presented in parliament.

FIIs now have been net sellers in last 8 consecutive months, while DIIs are the net buyers, and retail participation has again been the saviour, helping the markets to rebound from lows.

IPO market will be hot again in December, with big names like Emcure Pharma, Delhivery, Aadhar Housing, Adani Wilmar, Go Airlines and 27 other companies lining up their new issues worth 25000 Crore.

Market Outlook – Nov 2021

Nifty & Sensex touched a new high of 18604 & 62245 respectively in Mid-October but had a sharp correction by the month-end. Nifty & Sensex fell 5% each. Large Caps corrected 5%, while Mid & Small Caps corrected 8% each. Valuation wise, these figures are in the overvalued zone and needs correction, which has started.

Reasons for correction:

  1. Fed Policy meet on 3rd November, for the start of tapering.
  2. Big IPOs like Paytm, Policy Bazaar squeezing 27000 Cr liquidity from the market.
  3. Markets rebalancing itself as per 2nd Quarter results.
  4. Oil breaching $100 mark again.

“If GREED & fear had to own one stock market globally for the next ten years, and not be able to sell it during that period, that market would be India,” – Christopher Wood, global head of equity strategy at Jefferies, wrote in his latest weekly note to investors GREED & fear.

“Any sell-off in Indian equities, triggered by tapering/ tightening scare on Wall Street will provide opportunities to add to Indian equities, most particularly if this coincides with a further likely rise in the oil price on an accelerating re-opening of the global economy,” Wood wrote.

Shaktikanta Das has been given an extension of another 3 years as RBI Governor, hence expect no major rate hikes as he is expected to toe Govts line in keeping a low-interest rate regime.

FIIs now have been the net sellers in the last 7 consecutive months, while DIIs are the net buyers, retail participation has grown considerably and again played a big role in the current rally. Post correction it is recommended to shift around 10% from Debt to Equity in this month.

Wish you & your loved ones a Happy & Prosperous Diwali!

Market Outlook – Oct 2021

Nifty & Sensex both touched a new high of 17947 & 60412 respectively in Sept. Nifty PE is trading at 27.34 multiple and Sensex is at 31.51 multiple. Valuation wise, they are in the overvalued zone and needs a correction, which has started. Nifty corrected 500 points last week & Sensex 2000 points.

Reasons for correction:

  • Fed indication of the start of tapering from November.
  • China’s biggest real estate developer Evergrande defaulting on interest payments.
  • Power cuts in China due to rising coal prices & shortage for the same.
  • Energy Crisis in Europe due to sharp rise in gas prices.

All the above reasons are global and nothing local. Manufacturing PMI rose to 53.7 from 52.3 and Inflation reduced from 5.59 to 5.3. 89crore vaccination doses have been given so far. Most of the lockdown restrictions are removed and schools & theatres were granted permission to reopen. With the festive season setting in, huge pent-up demand is expected to come up in the coming months.

FIIs now have been net sellers in the last 6 consecutive months while DIIs are net buyers, retail participation has grown considerably and played a big role in the current rally. A staggering 11 million new Demat accounts blew through the previous year’s record of 4.7 million accounts, and by almost double at that. IPO market will see 17 Companies tapping the market with 30,000 Cr worth of new issue. Emcure Pharma, Nykaa, Mobikwik & Star Health will be the big ones.

As Expected, tax filling dates has been extended till 31st December 2021. Tax Filling glitches still exist, delaying the whole process. Post further correction, it’s recommended to shift a portion of the Debt portfolio to Equity this month. Speak to your advisor to know more.

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Market Outlook – Sept 2021

Nifty & Sensex crossed a new high, crossing 17k & 57K respectively. We had expected this figure by Diwali, but the market surprised all investors with an early Diwali Gift. This was the fastest jump ever, completed in mere 28 days’ time.

Reasons for this rally:

  • Strong Q1 numbers & an expected even better Q2 numbers across all segments.
  • Fed Powell going soft on tapering, giving new energy to bulls.
  • Record Vaccinations, almost half of population covered with 1st dose.
  • Strong retail participation, never seen before.

Revised average target of Nifty by many brokers is now around 18.5k by Nov-Dec 21. Since Mid & Small Cap segments had seen a decent correction, it’s an ideal time to shift Debt allocation (around 10%) to Mid & Small Cap schemes this month. Due to the lack of any major negative news, we expect this rally to continue and touch new highs.

Only Threat: Possibility of third wave hitting early.

FIIs now have been net sellers in the last 5 consecutive months, while DIIs are the net buyers, with retail participation growing considerably and played a big role in current rally. IPO markets will see 9 Companies tapping the stock market with 12500 Cr worth new issues. Aditya Birla Sunlife AMC and Utkarsh Small Fin Bank will be the big ones. Tax Portal Bug: Infosys had been given the contract to launch new website for Income Tax Filling, wherein most of the data like capital gains from shares & mutual funds would have been automatically captured and filling would have become simpler. The new website was launched but with a lot of bugs making it impossible to file tax returns. Finance Minister Nirmala Sitharaman had given Infosys deadline of 15th Sept to resolve the issues and make it work. Tax Fillings for clients had been delayed and most probably there will be an announcement of the extension of filling date deadline soon.

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Market Outlook – Aug 2021

The stock market has been range-bound in July, with Nifty hovering in the range of 15600 -15800. Quarter numbers (Apr-May-June-21) were better than expected, led by IT, Cement & Consumer sector, while the Banking sector has been the worst performer (with below par results).

Overall View: after a strong FY21, earnings for FY22 have begun on a healthy note. 1QFY22 earnings are progressing in line thus far. The damage from the second COVID wave and the consequent lockdowns in April/May’21 has been much lesser than that from the 1QFY21 national lockdown. Management commentaries across the board suggest an improved demand environment post-June ’21, led by the easing of restrictions, lower active COVID-19 cases, and a pickup in vaccinations. However, the impact of rising commodity costs and, in general, higher inflation is reflected in the P&L. Asset quality in Financials has expectedly weakened sequentially. We estimate corporate earnings to continue to recover, as the underlying economy opens up, with progressively higher vaccination trends.

FIIs have been net sellers in the last 4 consecutive months, while DIIs are net buyers, a matter of concern, but expecting FIIs buying to resume soon. The IPO market is hot with bumper listings of Zomato, Clean Science & Technology, Tatva Chintan & GR Infra. Next few months, many IPOs are lined up – Devyani International (KFC / Pizza Hut), Policy Bazaar, Car Trade, Fino Payments Bank, Star Health Insurance, Paytm, Mobikwik, NSE, etc.

The RBI’s MPC meeting is scheduled for the coming week, however, the expectation is that the RBI too, just like the Fed, will not hamper the repo rates, so as to continue supporting impacted sectors with cheaper credit.

Positives: Healthy Q1 Earnings, High Liquidity, Reducing COVID Nos, High Vaccinations, Good Monsoons, easing of Restrictions, long Festive season, and Pent-up demand buying.

Negatives: Possibility of third-wave due to highly dangerous delta virus, and rising inflation.

Clearly, the Positives outweighs the negatives. Therefore, one can look at shifting a chunk of the debt allocation to equity, in case the market corrects further.

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Market Outlook – July 2021

Nifty has risen over 13 percent so far in 2021, and over 50 percent in the past year, soaring to the peak of 15,915 on June 28, 2021, but it seems bulls may be losing steam and the market would be prone to volatility, going further.

If the momentum continues, the next target is 16,800 – 17,000 in the next 6 to 12 months, but the journey would not be linear like it has been for a year, as most of the good news, be it vaccination, earnings, or economic recovery, is already priced-in.

FII’s have been the net sellers in the last 3 consecutive months, while the DIIs are the net buyers. The IPO market is hot, with 5 companies lined up to hit the primary markets, including Zomato, Glenmark Life Sciences, Clean Science & Technology, Krsnaa Diagnostics, GR Infra and Shriram Properties.

Key events to watch for will be the 1st quarter results, starting with Infosys, which is expected to deliver a strong performance. Banking & Financials will be the key sector to watch, as NPA numbers are expected to rise further. Retail Inflation in India is at 6.3% in May, crossing the RBI’s threshold, making commentary from RBI Governor interesting in the August Policy Meet, though he is expected to keep the status quo (on the rates).

We expect a strong performance from across sectors, the high valuations will be justified post the Q1 results. Hence July brings an opportunity to shift the Debt allocation to Equity, keeping us well prepared and ready for the next jump. The current weakness in markets should be used to timely shift at lower levels, though not much fall is expected.

Happy Investing!

Market Outlook- June 2021

Warren Buffett once said that it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful”.  Current market is an absolute reminder of the above quote.

Sensex & Nifty have touched record highs and still going strong. Globally, mobility and economic indicators are showing a recovery. Strong growth, loose policy, and excess liquidity are boosting global equity markets to all-time highs. India has also crossed the milestone of $3 trillion market capitalization. Due to the impact of Covid in the April-June quarter, India’s FY22 real GDP growth estimates are being downgraded by 2.0%-2.5%. However, the 2nd Covid wave has peaked out (more or less) and the pace of vaccinations is rising with improved supply. So, India’s economic recovery should come back on track by FY23.

FIIs have been net sellers in June but expected to come back strongly in 2nd half of this year. Till then strong domestic flows and increased retail participation should support markets. Any correction should be temporary and minor. However, short-term upside may be limited, and the market are likely to remain range-bound.

Strong numbers from Large Cap Stocks have justified their valuations and hence their allocations have been increased this month. Mid-Caps have also been catching up fast. Small Caps are in high-risk zone and hence allocations for that segment is not recommended at present.

Since RBI will not further decrease rates and inflation is expected to rise, most likely the interest rates may go up in the future. Hence Debt funds may also need allocation change, from PSU & Banking to Floater or low duration funds.

Considering current & future scenarios, equity to debt portfolio allocation needs further restructuring and should be in sync with the changing market dynamics. It is advised to be in touch with your advisors towards same. Happy Investing!

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