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Market Outlook – March 2021

Markets took a pause in February, after touching record high, post budget. Domestic equities ended in the negative territory. S&P BSE Sensex and Nifty 50 fell, 3.5% and 3%, respectively.

Concerns about the recent spike in the number of Covid-19 cases back home and weak global cues, including rising global bond yields, especially in the US, dented the market sentiment. However, further losses were restrained on optimism that vaccine rollouts across various parts of the world will allow a swift global economic recovery. Finance Minister Nirmala Sitharaman’s announcement that the government has lifted the embargo on grant of government business to private banks induced further buying by investors.

India’s Gross Domestic Product (GDP) for the October-December 2020 quarter grew by 0.4%, while the GDP for the entire financial year 2020-21 (FY21) is seen contracting 8%. India’s fiscal deficit widened to Rs 12.3 lakh crore in January, representing 66.8% of the target as per the revised estimates (RE) for FY21. India’s core sector growth came in at 0.1% in January against 0.2% expansion recorded in December.

The Cabinet approved the production-linked incentive (PLI) scheme worth Rs 15,000 crore and Rs 7,325 crore for the pharmaceutical and technology hardware sectors, respectively, to encourage domestic manufacturing.

Crude oil prices rose sharply, due to a drop in crude output after a deep freeze in Texas disrupted production last week.

As mentioned in the February market outlook we have advised 50% profit booking in equity and suggested shifting the same to Debt. We expect further corrections this month, which may allow one to re-enter or shift Debt gradually back to Equity. We also recommend (to start) building an equity stocks portfolio, in a gradual manner, buying on every dip.

Happy Hunting!!!

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Market Outlook – Feb 2021

January 2021 was a month of record highs. Sensex scaled 50K for the first time, and Nifty50 at a kissing distance to touch 15K. Budget 2021 got a big thumbs-up from the stock market, with Sensex jumping record 5% up, on a single trading day.

The Union Budget was tilted more in support of the Growth, even at the cost of higher borrowing. Government increased focus on infrastructure and no Tax rate hikes (as expected) cheered the market. The Budget is aimed at supporting employment and businesses by spending, rather than worrying about near-term fiscal position. Economic environment is becoming more conducive for a business cycle recovery. We continue to remain positive on sectors which are closely linked to the economy like Banks, Capital Goods, Infrastructure, Metals/Mining etc.

We believe the current market rally may continue till the below mentioned triggers play out: a) US acknowledging inflation & in conclusion pausing stimulus, b) US Treasury Yields reaching 2%, & c) Crude Oil touching 60-65$/bbl, which may lead to high inflation.

By Historical standards, Indian markets are highly overvalued. The ratio of Sensex share prices to company earnings is now over 34, against under 20 historically. China’s ratio today is just 17.5%. Sensex is bloated by global flood of central bank money. The flood will ebb one day.

It’s recommended to book profits and park the same in Debt funds. Idea of this parking is to bring a cushion to this liquidity driven market, which will taper at some time. Even if these cues do not sustain, one can look at moving back to equities, at an appropriate opportunity.

Also, what is highly recommended, is not to be a Robinhood in these markets, but keep in touch with your trusted advisor and his/ her guidance 😉.

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BUDGET 2021 – what is there for me?

Budget 2021 will be remembered for many years to come, as the market went into full gear and ended with a gain of almost 5% in a single day. Wow!

What appealed to the market was the fact that there was no negative news, like Covid19 tax, Wealth Tax, LTCG changes and many other news, which was floating around before the budget. And the biggest contributor was the Government spending on account of Covid19, leading to big borrowing and fiscal deficit hitting 9.5% (Good, as well as Bad).

Coming to the point, what is there for ME? Good or Bad 😉

Tax Filing – Tax filing will become simpler for us further, as other than salary, bank, tax/ TDS details, which is available/ pre-filled, we will now have prefilled details on capital gain from listed securities, mutual funds, dividend income etc. Very good for us.

Dividend Income – Taxpayers are not required to estimate their dividend income for advance tax payment. Tax to be paid only when dividend is declared or paid by the company. Good for HNI.

Senior Citizen Tax File – Senior citizens, aged 75 or upward, need not file Tax returns, if income consists of Pension & Bank Interest (same bank linked to Pension). Good for senior citizens. Very Good.

NRI investments – Rules will be decided on the income earned from overseas retirement funds, opened by an NRI while working outside India, to avoid double taxation and other issues. Good for NRI.

EPF contribution – Interest on employees’ share of contribution to EPF, will be taxable at the stage of withdrawal, if it exceeds 2.5lacs in any year, on or after April 1st, 2021. This will be negative for affluent/ HNI’s, who contribute higher to their salary.

ULIP – Proceeds from ULIP issued on/ after 1st Feb 2021, will be taxed for capital gain, if the amount of premium exceeds 2.5lacs in any year. Again, negative for affluents/ HNI’s.

There are more to above/ Budget points, therefore we suggest you speak to your Advisor on the fine prints, its applicability & understanding.

Happy Budgeting!

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Market Outlook – January 2021

Stock Markets across the world bounced back from the steep drop in March. The Tech heavy Nasdaq gave a whopping 42% gains, wider index S&P 500 gained 15%, and the story is quite similar in India, with Nifty gaining almost 15%.

The year 2020 was an extreme year in all sense, the entire global markets were tested at extreme levels, the volatility across the asset classes, including Equity, Commodity and Forex were extreme and smart investors managed to scoop-in gains by actively managing their portfolios.

We are entering 2021 with the market at its peak valuations, factoring the improving economy and the next fiscal year expected to be better. FII’s are continuing to pump the money in emerging markets like India, which also explains the one-sided rally, which we are witnessing currently. The next rally in the market is crucially dependent on many forthcoming events.

In the coming month, the US will be governed by the new President, there will be some structural reforms expected, and the budget will all lead to market swings. All eyes will be on the Bank Q3 financial results, since this will be the first quarter, post moratorium and analysts will keep an eye on NPA and provisioning numbers. India’s Financial budget is due in Feb’21 along with interest rates announcement and GDP data. Speculation activity and volatility is expected to be on the higher side due to these events lined up.

The above news is expected to decide the fate of the market in the coming months; hence Investors are advised to start booking the profits and rebalance their portfolio accordingly.

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Market Outlook – December 2020

$8.8 Billion USD (or INR 64k Crores), that is the kind of money brought in by the FII’s (Foreign institutional investors) in November-2020, catapulting the stock markets to a new high, and making the month with the “highest monthly net-inflow” (ever till date). The Mid and Small-cap sector were the outperformers to Large-cap, as the Large-cap sector seems to be at saturation with the top giants (like Reliance, TCS, Infosys & HDFC twins).

If one looks at the market valuations from the earnings perspective, it will appear to be expensive, since the profitability of the company has been affected the most, due to the unprecedented times. Though we all know that this is a temporary phase and recovery may be better than expected, but other ratios like Market-cap to GDP, it is above average, where GDP is expected to be in the negative territory for the current financial year.

We believe, and based on the historical trends, the market is nearing to test its saturation level, and the rally would only be sustained if FII’s keeps pumping funds. Recently MSCI has increased the weightage of emerging markets like India in their index and hence all the passive fund’s flow is getting diverted towards the Indian market.

The GDP for Q2, for the current fiscal year, improved better than expected and contracted by -7.5% (market expectation was in the range of -9 to -11%). Nomura & CARE has revised expectations for the current fiscal year based on the new trend line, with a forecast of -8.2% & -7.7%.

Considering all these factors, one should relook at their portfolios and rework on future allocation.

Happy Investing!!!

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Financial Advisor – Who to choose?

When we search for an Investment Advisor or a Firm, we have too many names that pops-out, and each one of them highlighting … either an Ivy league degree (they have), or Assets they manage, or How big the firm is?

Also, we have the smart marketing Ads & Campaigns, which are too enticing, either making us believe that Investments is a kid play, or the kind of returns one can generate … super easy 😉.

Plus, the world we live in today has too much information overload, how to filter it down, who to believe, and finally who to choose?

Two simple questions to shortlist an advisor or a firm.

Sounds unbelievable, but it is that simple.

Who talks the most in the first meeting (or the call)? … in the first or the initial set of meetings, or the Tele-call, usually it is you who will be talking the most, and your advisor will ask basic questions (to drill down your requirements), and there will be no products offered at this stage. If it is the other way round, then you are in the wrong hands.

It is like a doctor’s appointment, where post listening to you, asking basic questions & checking your reports, finally the doctor writes a prescription.

How do they make money? … although this is the most awkward question to ask, but when it comes to your hard-earned money, you better ask and most importantly, how it is answered. If they are not comfortable answering this, or try confusing ways, then you are in the wrong hands.

Disclosure, conflict of interest, earning modes, risk factors etc … cannot be part of the agreement only (the fine print), but needs to be spoken first and to be highlighted at the start.

Trust builds up… only If your Advisor is transparent with you, and that too, speaks simple language, right from the beginning.

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Markets at a New High – Sensex at 44K levels

Keeping aside the Corona & Lockdown fear, our economy & the stock markets are upbeat on the future and the surge continues. Some of the indicators from today’s Economic Times, to Cheer us up 😉.

Business recovery at a New High: The Nomura India Business resumption index (NIBRI) touched 87.1 for the last week, against 84.4 the previous week.

Car industry on a High Gear: Maruti being the market leader, has revised its annual production target recently, based on demand & long order book in hand. Earlier it was expecting a 20% decline, with analysts predicting 13-14%, which they have revised it to 5-8% now. Other manufacturers like Hyundai, M&M & Tata, all are all sitting on a strong order book & demand, thereby helping the passenger vehicle industry to an early revival.

IPO Market warms up: Come December, and we have half a dozen companies eyeing for raising funds through IPO. So far in 2020, 12 companies have raised funds through IPO, with the majority of them yielding handsome returns.

Companies likely to raise (IPO) in Dec: Kalyan Jewellers – 1750crs, Suryoday Small Fin Bank – 1000crs, ESAF Small Finance Bank – 1000crs, Nazara Technologies – 950crs, Burger King – 900crs, RailTel – 700crs, & Antony Waste Management – 350crs.

Photo Credit: Economics Times

Market Outlook – October 2020

Today effective yield on debt post tax is 4% to 6%. If I can earn 12% to 15% on equity, I am a king, says Rakesh Jhunjhunwala.

September 2020, the market remained volatile during the month, mainly due to FII selling amid global cues. Even though the market has factored in a gradual recovery of the economy, it is expected to remain range bound and volatile, till the time the economy catches up with market growth. Global & local events like the US election count down, Covid19 vaccine announcement, Bihar elections, will keep the speculation, buzz & the volatility alive.

The current market is at a fair-market-level, at an overview it may look 8-10% away from the Pre-Covid19 levels, but if one excludes the rally of Reliance Industries, the rest of the market is still down by 13-15%. Even If we assume FY21 to be in negative territory in terms of economic growth and FY22 to bounce back (only to reinstate pre-Covid levels), the market still has a potential to deliver a double digit CAGR growth, from the current levels. Any correction (if seen) in coming few months, one should capitalise with a lumpsum investments, for a better averaging.

Gold has corrected by ~10% and it seems to have a strong resistance at 48,000 level. Currently it looks to be at an attractive level to start investing and make it part of the portfolio.

Happy Investing!

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The FOMO effect – The Fear of Missing Out

The FOMO effect is catching up with the Indian retail, which is evident from the number of new DMAT accounts opened since the lockdown started, and the uptake in the daily trades, where leading discount brokers claim that they process 5m to 7m orders a day.

Where will this lead to? Looking at the international markets, we have quite a similar trend, where due to lockdown, online penetration and given options, retail does not want to miss out on this opportunity. Equity markets since June are on an upward swing, showing a V-shaped recovery, hence giving boost to the participants equity and a cascading effect on the new word-of-mouth traders 😉.

The only difference here on the FOMO effect, is the quantum of money invested, where retail participation will go from tens of thousands to few lacs, as it comes from the monthly savings and not cash-in-hand or liquid funds (unlike a HNI client). Even though returns may be way higher on the lockdown investments or even the trading, but the long-term effect will eventually rule on the final returns, i.e. 10 years from now, time will decide and average-out the returns (which is hard to digest).

Ultimately, for a retail participant, it’s not the euphoric moment or even the entry point of investments, which will dictate the high returns, but the time horizon of the investments, i.e. how long one can remain invested, and also, how often one invests (Power of SIP).

A famous quote from Warren Buffet, who turned 90 recently: “Someone’s sitting in the shade today, because someone planted a tree a long time ago.”

Happy Investing!

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Market Outlook – SEPT 2020 – what next?

Market witnessed a phenomenal surge till the last day (Aug-20), almost at a kissing distance to the next level, i.e. 12k for Nifty & 40K for Sensex. Even though India’s daily count on COVID19 numbers is still a cause of worry, some of the indicators show a ray of hope, on the curve flattening and numbers to drop, most likely by mid or end-Sept.

The first quarter GDP data was on the expected line, i.e. our economy contracted by 23.9%, with only one sector, i.e. agriculture witnessing a growth of 3.4%. The biggest contributors on contraction were the manufacturers, services, hotel & tourism sector, as they were the worst affected due to the lockdown.

With the economy opening up (since June-20), current quarter (Q2) data is expected to be good, as GST collection as an indicator, looks promising (till now it stands at 1.8lac crores, with one month to go, against 1.85lac crores for entire Q1). Monsoon this year has been above normal, and will most likely will lead to a higher food grain yield & production, resulting in higher income for the farmers, i.e. a very good indicator on growth.

Next quarter, i.e. Oct-Nov-Dec-20 should be a bumper quarter (compared to Q1 & Q2), as all indicators should witness growth & euphoria. Biggest indicator to pull it up, will be the announcement of COVID19 Vaccine, leading to economy opening fully and consumption to return to base normal (i.e. fear to move away), leading to a “Happy Diwali”, as one of our key festive consumption seasons.

If we keep the fear & the political narrative away, and just look at the small cues or success stories, which are emerging now, (it’s a human nature, with bigger stores on focus, we miss out or ignore the smaller ones), the gloom or the dark clouds are slowly fading away.

Happy Investing!

Picture Credit: Finfeed