Market Outlook – July 2022

“You make most of your money in a bear market, you just don’t realize it at the time” – Shelby Davis (American Businessman, Investor, Philanthropist)

Markets have clearly entered a bear phase with Nifty correcting from 16,594 at the start of June and touching a low of 15,183, a 10% correction before recovering to 15,780 by the month-end. Major reason for the above fall is fear of recession, which according to many experts, is more or less confirmed. Central Banks across the world has started to hike rates following a steep spike in inflation which will lead to decline in growth across economy.

Nifty PE is trading at 19.54, nearing fair valuations. USDINR has touched record high of 79.42 nearing the 80mark figure due to heavy outflow of dollar – FII Selling, Crude & Gold Imports. Govt has also imposed a 5% duty on Gold to reduce Gold imports.

Q2 Corporate results will start kicking in from this month and cost pressure on margins will be clearly seen in the P&L statement. We expect not so good result season this quarter, but the individual performances will be rewarded by the markets. Expect Nifty to move sideways with select focused funds delivering better returns than index in the next 6 months.

Recession is always good for markets. Markets performs better when liquidity is high. Due to the same liquidity, markets performed extremely well last year, and due to lower interest rates, people were borrowing more. Even Govt distributed money to people in COVID period, which added extra liquidity in markets.

At present markets are falling because this liquidity is getting squeezed by rising interest rates. Once recession is finally confirmed, inflation will fall due to low demand and growth will come to a halt. This will again make Govts start declaring stimulus packages to revive growth and Central Banks will also start cutting rates again, bringing back the much-needed liquidity in the market.

Hence recession is always good for markets, it is the signal of start of a bull market as markets are always forward thinking. A bear market cycle typically lasts for 1.5 years.  1 year is almost over, with another 6 months of pain left. Hence this is an opportunity in disguise, where one should make most of this fall/ cycle and invest fully in equities for a medium to a long-term horizon.

Mushtaq Kazi
Mushtaq is the co-founder of Mushtaq has had corporate stints with Kotak Securities & IIFL group. He holds an MBA degree from Pune University.
His interests include cooking & gardening. When he is not cooking or gardening, he is writing.