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!!!

“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” – Peter Lynch (American investor, Mutual fund manager & Philanthropist)

July was a classic example of a pullback rally, with Nifty moving from 15,752 to 17,158, a jump of 9%. It was a broader market rally with Large, Mid & Small Cap indices recovering in equal proportion. Nifty PE is trading at 20.85, just above the fair valuation. All sectors barring Energy ended the month in green. Energy lagged as Govt. levied windfall gains tax.

Reasons for the above jump:

• Oil prices cooled off; Brent crude was down 6.8% month on month in July’22.
• Net institutional flow rose to US$1.9bn with FPI inflows ending positive for the first time since September 2021, and domestic mutual funds recording inflows for the 17th straight month.
• Inflation may be closer to peaking-out globally, given the cool off in most of the commodity prices, including oil prices, hinting of a slower rate hike trajectory by US Fed. Inflation in India remains relatively low and is on a path of moderation due to normal monsoons.
• Q1 results so far has been as per expectations with no major setback. Management commentary has been upbeat, guiding for improved business outlook going forward.
• US Fed hiked rates on expected lines & indicated moderation in pace of further rate hikes.

India’s economic activity remains unaffected despite the ongoing Russia-Ukraine war which has severely impacted other major countries in terms of supply chain destruction. June-22 marked the 12th consecutive month where Manufacturing & Services PMI held steady above the 50mark indicating continued expansion. GST Collections have been resilient since economy re-opened and have been a major source of revenue for the Govt. which is working towards reducing Fiscal Deficit. Overall economic activity is back and higher than pre-pandemic levels. Monsoons have been normal till now and will pave way for good rural demand and a bumper festive season ahead.

Equity Market Outlook – Short Term: Neutral, Long Term: Positive

We are of the view that against a 23% earnings growth, the more likely growth could be 17-18%. So, there could be a 4-5% correction on the back of earnings miss and another 4-5% correction because the valuations are outside of the comfortable zone. So, on a fair value basis, the market (Nifty) could be 9-10% lower than what we are today. Geopolitical and global macro concerns are still there. That could lead to continued earnings downgrades.

So current upbeat mood can be short lived and there is a possibility of one more dip back to 15800 levels for Nifty once the earnings expectations play out. From a 100% equity allocation since past few months, one should start allocation to Debt funds from this month.

Happy Investing!!!

“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.

Testing Time Ahead – Nifty gave up most of the gains, which it recovered in April-22, correcting from 18100 to 17000, down by 6%, on account of disappointing Q-4 numbers, geo-political tensions, rate hike by Fed, lockdown in China and rising inflation (as the main reasons for this fall).

Stagflation is now a real risk around the world, where the economic growth rate has become slow, unemployment is high, accompanied by high inflation. Central Bankers (apart from the US) are in dual mind whether to increase rates, or hold-up. We expect markets to be range bound for next 3-4 months and advice clients to accumulate gradually on every fall. Do not expect higher returns immediately and one can see some green shoots visible during the Diwali period or later.

Key Events – May 2022:

• Fed meet on 4^th May, 50 bps rate hike expected, with a commentary on the pace of further rate hikes crucial – Negative for the markets.
• Russia to celebrate its annual Victory Day over Nazis on 9^th May and likely to announce its further strategy on Ukraine War.
• LIC IPO to start from 4^th May, with an issue size of 21000 Cr, biggest ever IPO till date.

During FY22, FIIs sold ₹1.40 lakh crore in equities compared to the last year when it was a net buyer of ₹2.74 lakh crore. Meanwhile, DIIs were net buyers of ₹1.26 lakh crore in first eleven months of FY22 compared to net sale of ₹39,000 crore last year. Apparently, this is one of the worst outflows from India by FIIs in many years.

All this is because of the unexpected pandemic, that hit the country badly followed by another event that escalated inflation in the country – i.e., the Russia-Ukraine war — and most importantly because of monetary tightening in the US, which makes the US debt market more attractive to FIIs. And hence the huge sell-off.

Even after a challenging time since COVID-19 that triggered the sell-off by FIIs, markets do not seem to be intimidated by the selling spree of foreign investors as domestic institutional investors (DIIs) have come to the rescue like never before. The constant surge in systematic investment plan (SIP) inflows is among reasons markets have been offsetting most of the selling pressure from foreign investors as every market correction is seen as an investment opportunity.

Recovery Time … War in Ukraine is still not over, but the markets have recovered significantly. Nifty touched a low of 15800 in March, down 15% from its peak of 18600, but recovered 14% by the end of the month to reclaim 18000. Since US & European Countries did not directly participate in the Russia-Ukraine war and only levelled sanctions, markets world over breathed relief, as this has not escalated into a full-scale world war. Crude Oil corrected below 110$ levels and metals also corrected.

BJP won UP assembly elections with a huge majority and this event was a big positive for the markets, as it was an indicator of what to expect in the 2024 Lok Sabha elections. COVID restrictions were completely removed in many states, also a key reason for the sharp rise in markets. Fuel Prices saw a jump of Rs 10/- per litre post elections and another Rs 10/- the jump is expected in the coming days, threatening a huge spike in inflation and a big negative for markets going ahead.

Key Events Apr 2022:

• Duration of Russia-Ukraine War: if it does not end soon, crude may remain above $100 per barrel, and markets will remain lower till that period.
• RBI Policy decision: on April 8^th, Governor is feeling pressure to hike rates.
• Fed expected to hike: another 50bps in the next policy meeting, negative for the markets.

Key to markets was consistent buying from retail investors, which absorbed much of the Fed rate hike shock. We expect the Ukraine-Russia war to get over by month end as both parties have shown good progress in talks.

Since the profitability of Indian companies will be impacted by rising fuel prices, markets may remain sideways for this quarter. But one can expect a good rally post-July-August festival season.

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 15^th 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.

No Bad News = Good News!!

The Union Budget 2022 was presented on 1^st 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 9^th 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 10^th. 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.

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 1^st Feb, 2022.