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Market outlook – July 2023

“Don’t always trust what you see. In a bull market, even a duck looks like a swan”.
– Vijay Kedia (Indian Investor, entrepreneur, philanthropist, founder of Kedia Securities)

The month of June presented a blockbuster rally in the Indian stock market, that led both the NIFTY-50 and BSE-Sensex to climb to their all-time highs, not once, but thrice. The NIFTY-50 traded near the 19,300 mark and Sensex surpassed 65,000, as the month ended on the back of strong inflows from foreign institutional investors (FIIs), robust corporate balance sheets, moderating inflation and growth picking up coupled with expectations of a normal monsoon season, all of which bolstered the sentiment of market participants.

Positives in June:

  • US Fed pauses rates after more than a year of consecutive rate increases.
  • Oil Prices drops below 70$ per barrel, despite Saudi cutting oil production.
  • Retail inflation eases to 4.25% in May; April IIP rises sharply to 4.2%.
  • GST Collection Rises 12% to INR 1.61 Lakh Crore in June 2023
  • FIIs pumped in 27,250 Cr in Indian markets, 4th consecutive month of net buying.
  • Monsoon covered entire India and has been expected to remain normal in July.
  • HDFC-HDFC Bank Merger makes it world’s 4th largest bank based on market capitalisation.

Threats ahead:

  • Fed further hiking rates in July meeting.
  • Progress of the monsoon in the country considering any delay or below than expected monsoons can impact the rural recovery.
  • Rise in inflation due to subpar rainfall. (Tomato Prices already above 150)
  • Poor Q1 Qtly results, making stocks expensive.

Difference between Markets touching New High & Being Overvalued:

Though markets have touched new highs, valuations are still lower than the previous time the index traded at the same level (in Nov’22), on account of compounding of earnings in the interim.

Due to better-than-expected company results, Earning Per Share of companies have improved across the board, resulting in cheaper valuations despite markets breaking previous high.

Hence one should not panic, and press the sell button or profit booking, just because a new high is made. We expect revenues to improve in Q1FY23-24 and further improve valuations. Crude oil sticking to lower levels despite oil production cuts from Saudi, due to expectations of weaker demand will further fuel the growth of Indian stock markets.

Asset allocation strategy is always the key to generating alpha (or higher returns) over traditional method of investing. It usually offers following benefits:

  • Control & command over your portfolio.
  • Better tracking of valuations, hence decision for switching for profit booking or value investing becomes easier.
  • Curtailing of number of schemes in your portfolio, from many, to few, making tracking easier.

Therefore, we suggest, one should revisit their respective portfolios and discuss same with their RM’s or advisors to know more on aligning the portfolios with the best asset allocation strategy available.

Happy Investing!

Market Outlook – June 2023

“Speed is the currency that you want to maximize on today. Most people just go too slow. They think too long, and they never take any action.”

Grant Cardone (Entrepreneur, author, speaker, investor, and coach)

Nifty gained 2.6% to 18,534 in May’23, closing higher for the third consecutive month. The benchmark is now just a few points away from its all-time high of 18,887 recorded in Dec’22. Broader market witnessed higher action with Nifty Midcap 100 up +6.3%, while Nifty Small cap 100 rose +5.6%, sharply outperforming Nifty.

If you had bought the top 5-6 blue-chip stocks, then you’re already down by -40%, while index is trading at a life high.

Positives in May:

  • RBI kept the repo rate unchanged at 6.50% on expected lines.
  • India’s Q4FY23 GDP rises to 6.1% in Q4, FY23 clocks growth rate of 7.2%.
  • Retail inflation eases to 4.7% in April; March IIP falls sharply to 1.1%.
  • GST collection grew 12% to Rs.1.57 lakh crore in May’23, crossing the Rs.1.5 lakh crore for the 5th time since introduced.
  • Q4 corporate earnings have been impressive, with Profitability in line with our expectations. Nifty’s earnings grew 16% YoY (vs. est. of +14% YoY) in 4QFY23.
  • India’s trade deficit in April, falls to lowest in 21 months.

Threats ahead:

  • Fed further hiking rates in June meeting.
  • Weaker monsoon due to El-Nino effect.
  • Rise in inflation due to subpar rainfall.

How to predict Indian Markets with Oil prices? India is heavily dependent on imports for its oil requirement. India’s reliance on imported crude oil is at record high of 87.3% in FY23. India’s domestic consumption of petroleum products in 2022-23 rose over 10 per cent year-on-year to a record 222.3 million tonnes, making us world’s third-largest consumer of crude oil and also one of its top importers.

Who impacts Indian market? Indian-listed firms are majorly owned by private promoters and foreign investors (FIIs). Private promoters owned around 45.13% of Indian listed companies, followed by foreign investors (FIIs) whose ownership is around 20.15% currently.

This makes FIIs the largest non-promoter shareholders in the Indian market. On the other hand, mutual funds owned around 7.75%. Retail investors, meanwhile, hold around 7.42% of the domestic market.

Since promoters of company do not indulge in trading and just hold onto their stakes, it is the FIIs which determine the path of Indian markets. FIIs strategy is to invest in India when crude oil prices are down and withdraw when it is rising (a historic trend).

Oil is a major input for several industries. When crude oil prices rise, naturally, input costs and overall production costs also rise. This causes profit margins to fall which in turn reduces the stock price of that company. Conversely, a fall in oil prices produces the opposite effect. For every US $10 increase in the cost of oil, the current account deficit increases by 0.55% and the Consumer Price Index (CPI) increases by 0.3%.

Crude oil prices are expected to trade in the range of 65-75$ per barrel for the next 6 months. Reason being, recessionary pressure in US & European markets, rising interest rates has led to global economic slowdown. Start of summers in European countries means lesser fuel burn for heating purpose, till next winter.

Hence India will be a bigger beneficiary of lower crude prices in coming months. With valuations in fair zone, decent corporate earnings, good monsoons, festive seasons and robust consumption, will clearly lead markets touching new highs. We expect Nifty crossing 20K levels by Diwali.

Happy Investing!!!

Market Outlook – May 2023

“Investing is a journey of self-discovery. It reveals your relationship with money, your tolerance for risk, and your ability to stay disciplined in the face of uncertainty.” – Jeremiah Say

Indian equities rebounded sharply in April, on the back of strong domestic macros, healthy corporate earnings, and consistent intuitional buying (FII & DII) & mainly due to RBI’s surprising decision to pause at the April meeting amidst a gloomy outlook that prevailed in March.

For April’23, Nifty bounced 4.1% to close above 18k after 4 months of weak performance. Broader market witnessed higher action with Nifty Midcap 100 gaining +5.9% while the Nifty Small Cap 100 rose +7.3%, outperforming the Nifty.

Positives in April:

  • India’s manufacturing PMI at a 4-month high.
  • GST collection zoomed 12% to a record high of Rs1.87 lakh crore.
  • Q4 Corporate earnings is in line so far with a Profits of 26 Nifty companies, that had declared results till 4th May’23, have risen by 10% YoY (v/our est. +7%).
  • RBI pausing rate hikes, the impact of rate hike might be seen on earnings for next 1-2 quarters.
  • Sharp fall in Crude Oil Prices.
  • WPI Inflation eases to 29-month low 0f 1.34%.

Global Markets: Global cues were mixed. While both US Fed and ECB raised interest rates by 25bps with a likely pause ahead, slower economic growth expectation, led to sharp fall in crude oil prices. That apart banking crisis continues in US adding to the concerns. Washington is also staring down a June 1 deadline to raise the debt limit to allow continued borrowing to cover already accrued bills or risk the nation’s first modern-day default, which would rock the U.S. economy and send out global shock waves as well.

Threats ahead: Even after raising interest rates to multi-year highs and at one of the fastest paces, most countries are struggling to bring inflation back within their target bands. This is in the context of nearly six months of disinflationary trends from peak inflation rates and of consistent rate hikes globally.

Slow pace of inflation fall will lead to higher for longer policy rates policy, which will create recessionary scenario in Developed countries. Though chances of recession in India is nil, but recession in developed markets will slow down growth in India as well.

Market Outlook – May: The recent bounce in markets is capped on the higher side. Earnings have improved but not that high which will lead to new highs for indexes. We expect Nifty to be in the range of 17800-18500 for this month.

A considerable fall in inflation in US and a clear pause from US Fed will trigger next rally. Though monsoons are predicted to be normal this year, but any negative surprise will also have a big impact on Indian markets.

Market Outlook – April 2023

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” — Peter Lynch

When hit with recessions or declines in the stock market, one must stay the course. Economies are usually cyclical, and historically, the markets have shown that they will recover, sooner or later. Make sure you are a part of those stock market recoveries.

Some Good News: The Monetary Policy Committee of RBI unanimously decided to keep the policy Repo Rate unchanged at 6.50% thus bringing a temporary pause to the ongoing rate hikes. The RBI’s decision to keep the rates unchanged came in as surprise to majority of the market participants as against their expectation of rate hike.

The stance was tweaked somewhat with focus now on “progressively aligning inflation to target” along with “withdrawal of accommodation”. This is clearly an attempt to deliver hawkish pause.

We believe that we may have reached at the peak of the rate hike cycle and expect to stay there for the rest of this financial year, and do not foresee conditions for a rate cut materializing soon, given sticky core inflation, steady growth and 1 year ahead inflation staying well above RBI’s target of 4%. Overall Impact – Positive for Markets

Threats in April:

More defaults from West: Jamie Dimon of JP Morgan says the banking crisis is not over and will cause ‘repercussions for years to come’. Hence there is more room for correction if the global turmoil continues given the fact that the Indian stock market is not cheap.

Higher US Inflation: High U.S. inflation has been a key concern through the whole of calendar year (CY) 22. Market consensus estimates factor in a reduction in inflation for the U.S. from 8% in CY22 to 3.9% in CY23. However, inflation may prove stickier than expected on the back of persistent supply side issues and China reopening. This may prompt Fed to raise rates for another 2 quarter – a big negative for markets.

Rise of COVID: COVID cases have started to rise again. Daily infections shooted past 6K figure. Though this is in early stage, Govt is prepared in advance to tackle it. Booster doses are also available this time for general public.

Karnataka Assembly Elections: Dates for Karnataka Assembly elections have been announced. Polling on 10th May & Counting on 13th May. This is a crucial state from BJPs point of view. Losing this key state will be a big set back and can affect markets negatively – temporarily.

What Should Investors do in New Financial Year:

Continue their SIPs: Markets have been underperforming for around last 1.5 years from the start of Russia-Ukraine War. Healthy corrections is a basic characteristic of sound market and cannot be ignored. Markets will bounce back aggressively in future, but only those clients who have continued their investments and averaged their investments at low, will tend to benefit with higher returns.

Stopping SIPs by fearing current scenario and coming back for investing when market had already recovered will do no good for your portfolio.

Changing Schemes based on Returns %: Market constituents are very dynamic and should not be judged only based on returns generated. In Moneyfrog, using our Dynamix model we tend to track each and every sector and scheme on a day to day basis. If particular scheme has not performed in a particular period, it does mean that it will not perform in future as well.

For eg: US markets have corrected the most in last 1 year (around 36%). US Stocks are leader in market share and are disruptors. Indian peers are no way compared to growth, revenue & market share. Hence a correction in US based schemes should be seen as an opportunity, rather than exiting now. One will get the highest returns in 1 year time if they stick to the scheme and continue investing.

Shifting to Debt/FDs: FDs returns have risen in last 6 months due to continuous rate hikes by RBI. Investing in FDs/ Debt Funds are recommended to those clients who have retired or in need of a fixed monthly income to take care of their day-to-day needs or by those clients who will need it before a years-time.

Most of the clients are young, still long way to retire, no shortage of funds to meet months end portfolio build up has just started. They should always use any dip in markets to add more funds rather than shifting to Debt.

Once again repeating, “Portfolio has always given higher returns, whenever investments are continued, mainly during market falls.”

Last two consecutive months we are recommending 100% allocation to Equity funds due to steep market corrections. This month as well, one may continue the same, expecting a side-ways market.

Happy Investing!

Market Outlook – February 2023

“Courage taught me no matter how bad a crisis gets … any sound investment will eventually pay off.” — Carlos Slim Helu (Mexican business magnate, investor, and philanthropist)

Markets continued its January Jinx and ended lower for 2nd consecutive month in a row. The Nifty ended 2.4% lower, while Sensex fell 2.12%. All major sectors close lower in Jan’23. India’s outperformance in CY22 has faded in Jan’23. Barring India (down 2% MoM) and Indonesia (flat MoM), Jan’23 saw key global markets such as Korea (+8%), Taiwan (+8%), MSCI EM (+8%), the US (+6%), China (+5%), Japan (+5%), the UK (+4%), Russia (+4%), and Brazil (+3%) close higher in local currency terms.

Key Reasons, for this under performance:

  • Higher Valuations compared to peers in Emerging MarketsIndia was trading at 22 PE compared to 11.5 PE for Emerging markets. India hugely benefited from crisis in these countries (China Lock down and Russia-Ukraine War). Now since things are settling there, FIIs are realigning their portfolios and booking profits in India.
  • China opening-up after strict lockdown – During the past year, India had seen strong FPI outflows at the beginning of the year but as Russia-Ukraine conflict grew and China cracked down on its tech companies, the investors shunned these markets. India benefitted at the margin. Now, as China opens-up and its markets perform better, investors are realigning their portfolios and in the middle of another commodity up-move, India is seeing some FPI outflows.
  • Pre-Budget Selling – Traditionally markets go lighter before Budget. There were many rumours of hike in capital gain loss tenure, Govt opting for a populist budget before 2024 elections. Hence profit booking was done before that.

Key Events, that has set the tone for February:

  • Union Budget 2023-24: Furthering the efforts to boost the economic resilience considering the global growth moderation, the Union Budget 2023-24 attempts calibrated steps in the right direction. Focus on boost to infrastructure and capital spending along with fiscal prudence is a big positive. The budget rightly avoids populist measures in the pre-election year and prioritizes long term growth.
  • Major Announcements – Tax & Financial Sector:
    • Rebate limit of INR 5 lakh is proposed to be revised to INR 7 lakh.
    • The number of tax slabs have been reduced to 5 from 6. NIL tax rate is proposed for income up to INR 3 lakh vs INR 2.5 lakh.
    • Income from non ULIP life insurance policies having premium above INR 5 lakh per annum is proposed to be taxed, applicable for new policies after 1 April 2023.
    • Maximum deposit limit for Senior Citizen Savings Scheme to be enhanced from INR 15 lakh to INR 30 lakh.

Overall Verdict– Positive for Markets 👍

  • RBI Policy Meet: RBI in its Feb policy meet increased the repo rate by 25 bps to 6.5% from 6.25%. Sixth hike in a row, despite inflation cooling off. Surprisingly RBI was hawkish and remain focused on “withdrawal of accommodation” stance while supporting growth. RBI is expecting inflation to remain above the 4% target. RBI projects retail Inflation lower from 6.7% to 6.5% in FY23. Retail inflation projected at 5.3% for the next fiscal.
  • FY23 Real GDP growth projection increased to 7% from 6.8% & 6.4% in FY24.

Overall Verdict– Positive for Markets 👍 – Max another 25-bps hike in next policy meet and a pause after that.

  • Adani stocks meltdown: US based short seller Hindenburg Research, released its research report on Adani just a day before the company’s FPO was about to go live raising 20K Cr from the market.
  • Hindenburg Research allege that Gautam Adani, founder and chairman of the group, has added over $100 billion to his net worth over the last three years, largely through stock price appreciation in the group’s seven key listed companies, which have spiked about 819% in the same period.
  • The impact of this report led to heavy selling in Adani group stocks. Company somehow managed to subscribe its FPO but cancelled it a day later as it felt going ahead with the issue will be morally incorrect and not beneficial for investors.
  • The Adani group stocks (including Ambuja, ACC and NDTV) have lost around Rs 9.5 lakh crores or about 49 per cent of their combined market cap in the last nine trading sessions (from January 24 to February 6 2023).
  • Though it was a well-known news that Adani Stocks were overpriced, that’s the reason Mutual Funds stayed away from this group and did not have much exposure to the group apart from Index funds as Adani is part of Index, hence compulsory inclusion.
  • Adani group companies have little analyst coverage. Analyst reports play an important role in helping investors make informed decisions and a low or nil coverage reflects poorly on the quality of the company. It is often looked upon as a sign of lack of genuine investor interest, which makes brokerages and analysts give the company a miss in terms of tracking it.
  • In conclusion, the Hindenburg report on Adani Group raises serious concerns about the company’s financial and operational practices, as well as its environmental impact. While Adani Group has strongly denied the allegations, it is important for investors and regulators to take these concerns seriously and to undertake a thorough investigation of the claims made in the report. The report’s release is a reminder of the need for increased transparency and accountability in the business world and the importance of ensuring that companies operate ethically and sustainably.

Overall Verdict– Negative for Markets 👎 We recommend not to take any exposure in these stocks and wait till the dust settles down. One can witness huge volatility in these stocks in next one month period, but there are enough good stocks available with low valuations and clean corporate governance, which one can always bet on.

Overall Impact of above 3 events:

  • Last few months FIIs were net sellers but market was ably supported by local DII funds, which helped markets-maintained level, even when global peers were falling.
  • It’s now 1.5 years of market under performance and budget was seen as a positive catalyst which would have turned the next leg of growth in markets. Though the budget delivered on its expectations, but it was nullified by Adani news, denting the confidence of even domestic investors.
  • Hence, we expect markets to remain sideways for few months and one can start a move only after next quarter’s results announcement.
  • Since markets touched fair valuations post this fall, shifting from Debt to Equity is recommended. There are no further major events this month, hence we are expecting markets to remain sideways.
  • One can allocate 100% in Equity segment this month on the Asset Allocation Modelling.

Happy Investing!

Market Outlook – January 2023

“The secret to investing is to figure out the value of something – and then pay a lot less.”
Joel Greenblatt — American academic, hedge fund manager, investor, and writer.
After touching an all-time high, both Nifty & Sensex started a gradual downfall mainly due
to recession fears, re-emergence of COVID, higher valuations, pre-budget rumours and
expectations of a tepid Q3 result season.
History clearly tells us that, if you are a long-term investor, you should buy when P/E
reaches 15-16, and stop buying when P/E goes above 22. Current PE is below 5 Year
average, and another 500 points fall in Nifty, will make it an attractive buy.
January jinx! Will Nifty repeat history in January 2023? … Past records of the last 20 years
show that the headline equity index has ended 13 times in the red during the month of
January. While the worst January was in 2008, when the index lost 16.3% of its value amid
the global financial crisis, monthly returns have been negative, in all the last four years as
well. The average monthly return from Nifty in the last 20 years has been a negative 0.9%.
FII’s have restarted their selling. They sold in December and already sold 7,813 Cr in the
first week of January 2023. USDINR is steady in the range of 82.50 – 83. Crude Oil has
further eased to 78$ per barrel.
Events that will decide 2023 outlook:

  • China relaxed its zero covid policy, and cases shot up considerably. Markets are
    waiting to see whether it spreads to other countries as well, or not – Negative for
  • Better than expected employment data in US, and a persistent high inflation has
    made the chances of FED continuing interest rates in 2024 – Negative for Markets.
  • Q3 Earnings and Budget presentation on Feb 1st will be eagerly watched, Q3
    Earnings is expected to be tepid, with exception of few stocks, any hike in capital
    gain rate as rumoured will also be negative for the markets – Can go both sides.
    We believe that value buying is the theme of 2023, with a focus on domestically oriented
    sectors and buying on dips. Fair valuation, steady earnings, and a robust demand scenario
    will be the cutting parameters. Nifty below 17,500 levels is a good buy and will trigger our
    shift from Debt to Equity.
    Happy Budget!!!

Market Outlook – December 2022

“Never invest at unreasonable valuations. Never run for companies which are in limelight.” – Rakesh Jhunjhunwala – Indian Businessman, Ace Investor & Stock Trader

After a fall in September, Indian markets had a strong comeback in October. November has been a month of consolidation. Markets continue to be focused on Indian fundamentals, as the domestic money is the key driver and is now less influenced by the global happenings.

Positives in November:

  • China saw relaxations in Covid restrictions. 
  • In the US, lower than expected inflation number has raised hopes of a policy pivot.
  • European gas prices have fallen as they seem to be well provided for winters. Logistic costs have come down as well.
  • Oil prices has fallen below USD90 for brent. A USD10 fall in oil prices is a USD12/13 billion saved for our country.
  • Q2 result season has ended. The season was stronger than expected on profits. Q3 results would have the benefit of a strong festive season sales and a relatively weaker base.

India foreign exchange reserves rose $2.89 bn to $550.14 bn for the week ended November 25. The Reserve Bank announces the launch of the first pilot for retail digital Rupee (e₹-R) on December 01, 2022. The pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. Different features and applications of the e₹-R token and architecture will be tested in future pilots, based on the learnings from this pilot. India has become the first country to launch its own digital currency.

November Outlook: we expect markets to continue its positive run, but with a limited upside (Nifty Target levels – 19.5k on the upside and 17.5k on the downside). If US CPI nos. print a higher no., markets gain may reverse as Fed will continue with 75 bps rate hike.

Though Nifty & Sensex touched record highs, it was not a broad-based rally, with limited participation by mid-cap and small-cap stocks. Only five stocks including Reliance, TCS, HDFC Bank, Infosys & HDFC Ltd. accounted for over 50 percent of the increase in the Nifty 50’s market capitalisation, over the past two months.

Analysts have started increasing targets for the Sensex and the Nifty, even though economic growth estimates have been lowered by the foreign and the local brokerage houses, the International Monetary Fund, the Reserve Bank of India and the rating companies including S&P Global, Moody’s and Fitch. Investors now await RBI’s bi-monthly policy on December 5-7 for further cues. Monthly auto numbers, PMI and inflation numbers will also be watched.

Key Economic Events to watch a) 7th Dec: RBI Policy decision; b) 13th Dec: US CPI; c) 14th Dec: US Fed fund rates decision

Happy Investing!

Market Outlook – November 2022

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”

— Peter Lynch (American investor, mutual fund manager, and philanthropist.)

Markets have gained month-on-month, but Year-on-Year it is still at-par levels. Valuations are also stretched and with mixed quarterly results, upside remains capped. Markets can break previous highs but will mostly remain range bound.

Major Events in October & its impact on markets:

  • Fed Rate Hike: Fed hiked its interest rate by 75 bps, increasing it from 3.25% to 4%. This is the fourth consecutive rate hike of 0.75% and the sixth rate hike this year. These rate hikes are the fastest cycle in history, pushing borrowing costs to a 15-year high. The Fed has struggled to reduce inflation. The annual inflation rate in Sept. 2022 was 8.2%.

Impact – Negative. Markets have risen post rate hike, expecting rate hike cycle to end soon and inflation also peaking out. If data comes opposite of this, markets may correct again.

  • Decline in Crude Oil Prices: Crude oil prices have corrected below USD 100 per barrel mark and trading around 90’s level.

Impact – Positive. Low crude prices will help bring down inflation, hence pause in interest rate hikes by Central Banks.

  • Ukraine-Russia War Continues: There is still no sign of de-escalation of current war. Though Russia is pressured to restart peace talks, but the response remains muted.

Impact – Negative. Winter has started and Europe is heavily dependent on Russia for gas supply. Any further escalation may lead to a higher energy price, keeping inflation elevated.

  • Q2 Results: The 2QFY23 corporate earnings have been in-line thus far with heavyweights, such as RIL, HDFC Bank, SBI, TCS, ICICI Bank, and Infosys, registering in-line aggregate performance.

Impact – Positive. The spread of earnings has been decent with 70% of declared results meeting or exceeding profit expectations. However, the growth is being led by just BFSI and Autos with Metals, Oil & Gas and Cement posting a YoY earnings decline.

Heavy selling by FIIs has paused and inflows are clearly visible, which has led to market advance steadily in October. All eyes will be on US November CPI Data. High numbers will again bring FIIs selling, while a fall in CPI data will bring new highs for markets.

November Outlook: we expect markets to continue its positive run, but with limited upside (Nifty Target levels – 19k on the upside and 17.5k on downside). Qtr2 numbers till date has been in-line barring few sectors. We expect inflation to cool down and with it the rate hike cycle as well.

Happy Investing!!!

Market Outlook – October 2022

Has the Golden Era of the Indian Economy started?

Dark clouds have gathered over the global economy. The inflation rate in the United States has surged to 9.1 percent, the highest in 41 years, because of the COVID-19 period fiscal stimulus, as well as supply chain problems caused by the Ukraine war, aftereffects of the pandemic, and the recent lockdowns in China.

As the US Fed continues to tighten monetary policy, there are fears of a recession in the US. The US treasury yield-curve has seen its steepest inversion in 12 years, generally considered as a harbinger of recession. The head of the IMF recently warned of the rising risk of global recession in the next 12 months. Price of crude oil has fallen below $90 per barrel, and multinational corporate giants have started cutting jobs. As if the global news was not bad enough, closer home the Sri Lankan economy collapsed, triggering fears, will it be India’s turn next?

India is not insulated from the global upheavals. Growth projections have been revised downwards in the last few months, as exports will take a hit. However, the status of economic stability parameters is encouraging, and the strong fundamentals of the economy can de-risk it from global shocks.

GDP growth projections for 2022 are still the highest for India compared to its emerging market peers. High frequency indicators such as passenger car sales, two-wheeler sales, electricity production, and bank credit have risen in June for the second month in a row. The unemployment rate in June (7.8 percent as per CMIE) is higher than in May, but a lot lower than it was in February (8.11 percent).

While net foreign direct investment (FDI) continues to rise (the latest figure in April was $5.03 billion, up from $2.74 billion in March), foreign portfolio investors have been pulling out. The capital outflow combined with a return of current account deficit (CAD) has led to a slight deterioration in the official forex reserves causing concerns.

Q: So overall how India is able to hold strong, when the world is falling?

Ans: Smart Micro & Macro level management of economy.

Better COVID Management: India was able to produce and vaccinate its entire population twice, which was a remarkable achievement and helped control COVID pandemic. China, which is the manufacturing hub of the world, due to its mismanaged zero COVID policy has seen frequent lockdowns and led to supply chain problems around the world.

Neutral Russia-Ukraine Stance: India smartly maintained a neutral stance during the Russia-Ukraine conflict as it realised that sharp rise in crude prices will hit it badly. Hence it bargained with Russia for cheaper oil & gas supply even when the entire world was sanctioning Russia for the same. End-result, energy prices in Europe has doubled starring at a long & harsh winter with power cuts looming and inflation rising to record 10%.

Kept Inflation in check: India did not pass-on the crude price hike to its people, immediately banned key foodgrain exports so that there is no shortage internally, resulted into controlled inflation as compared to its world peers. A good monsoon and brent crude falling means that inflation will start falling in 2nd half of the financial year.

Make-in-India Policy: With an eye on becoming World’s largest manufacturing hub, India started the Make-in-India initiative by providing PLI (Performance Linked Incentives) to the business community. India knew that World was looking for an option to China which is troubled by constant COVID lockdowns, Taiwan Conflict & constant policy changes. With Power shortage in Europe now, India is looking for both China +1 and Europe +1 policy. Early results of this initiative have started to bear results with India becoming a net exporter of capital goods from net importer for so many years. India has become a manufacturing hub for mobile phones as the exports have doubled in one year, with almost all major brands setting up factories in India.

Robust DIIs market participation: Market participation by retail investors have gone up considerably, with a buying of 2.46 Lakh Cr against a sell-off of 2.84 Lakh Cr by FIIs in last one year in the cash market. People have realised that equity market is the only option available to beat inflation and create wealth. Constant SIP flows have helped DIIs to do the unthinkable, i.e., holding of markets despite heavy selling by foreign peers. Since India now is the only shining star in the whole world, FIIs will be forced to invest in Indian markets sooner or later. Though Indian markets are pricey at present, but better product always command a premium and that is why markets are not correcting as expected.

So, India is at a sweet spot and any correction due to foreign noise should be aggressively bought. Next decade is ours and a signal of massive wealth creation. So don’t be distracted with rumours or negative noise. Act sensibly and go for equities rather than FDs, Gold or Real Estate. India Story has arrived.

Happy Investing!

Market Outlook – September 2022

Q: How much is our return expectation?

A: 15% CAGR over 10 years.

Q: How patient are we with our investments?

A: Less than 6 months.

A year before, Nifty was trading at 17,368 and it is at 17,540 levels, at present. In between it went down multiple times, and even touched a low of 15,183. Different clients, entering at different levels, would have experienced different returns, in the same period. Client investing a lumpsum amount a year back would be at same levels, whereas a client entering at years low, would see a 15% jump in their returns. Clients using an SIP mode of investment, would see a 5% growth, and Clients having started an SIP 5 years back, would have generated a 15% CAGR returns.

5 Year SIP, as per Moneyfrog model, would have fetched even higher CAGR returns, over a traditional method of investing. Therefore, the key to investment is valuation, right allocation, timing & patience. Do not jump to the conclusion, in a short period of investing and above all, do not fear. Thumb rule is to keep investing regularly (i.e., monthly) and give time for markets to perform.

September Outlook: Nifty jumped from 17,340 to 17,759, a mere 2.4% jump. It remained range bound throughout the month and unable to break the 18K levels. Nifty PE is trading at around 21, which is above fair value. FIIs were the net buyers with 22K Cr buying and DIIs were sellers with 7K Cr selling in the cash market. RBI increased the repo rates by 50 bps to 5.4% and expected to raise it further in next policy meet. Inflation cooled of from 7.01% to 6.71% mainly due to fall in oil prices.

Key Economic Events: 1) Sep 13: US CPI; Sep 21: 2) FOMC Rate Hike decision, new Dot Plot (75 bps hike expected); 3) Sep 30th: RBI MPC meeting.

Festival season has begun, and monsoon this year also has been good. We expect a bumper sale across all sectors this year. Celebrations are on with no Covid restrictions this year, which will have a positive impact on consumption sales. Except Fed rate hike, where we do not see any major negatives this year and hence remain positive on markets breaking new highs. Any further fall may be treated as the last chance of entering at the market lows.

Happy Investing!!!