PERSONALISED INVESTMENT MANAGERS
Positive Negative Neutral
|Inflation (CPI - India)||Inflation reached 6.95% in Mar'2022, above RBI's upper tolerance level of 6%. High food inflation and high commodity prices were the main contributor.|
|Brent Crude||Brent crude prices decresed by -1% In Apr'2022, however it is still above $100 per barrel level and the same is uncomfortable for India|
|Currency INR USD||INR depreciated by 0.8% in Apr'2022. However, it is relatively stable among other emerging market currencies|
|GDP||GDP growth of India projected at 8.2% in FY22 as per IMF, making India the fastest growing major economy.|
|FII Inflows||FIIs were Net-Sellers of Indian equities to the tune of ₹17,144 Cr in Apr'2022. They have sold ₹1.65 Lakh Cr in past 7 months|
|DII Inflows||DIIs poured ₹29,870 Cr into Indian equities in Apr'2022|
|G-Sec Yield||Yield moved from 6.84% to 7.14% in Apr'2022 end.|
|Tax Collection||Record high GST collection of ₹1.68 Lakh Cr in Apr'2022. Inflation is also one of the contributor towards higher tax collection|
|Global - Inflation||In USA, inflation is 8.5% in Mar'2022 and it is the highest reading in past 40 years|
|Q4 FY22 Earnings Session||Totally 23 companies have announced the result so far, Out of 23 companies, earnings are upgraded for 15 companies whereas eanings of 9 companies have been|
|Valuations-PE||It is 21.87% off from recent peak levels of the market @ Oct'2021|
|Valuations-PB||It is just 5.62% off from recent peak levels of the market @ Oct'2021|
|Valuations-Market cap to GDP Ratio||Current markets are trading at market cap to GDP ratio of 102%. It is above its long-term average of 81% but below global average of 124%.|
High Risk Moderate Risk Low Risk
|RISK FOR EQUITIES||LEVEL OF RISK|
|US FED-Interest Rate Hike|
|Commodity Price Inflation|
|RBI-Sucking out Liquidity|
|Geo Political Tension|
|FII's Being a Net-Seller|
EVENTS, NATURE OF IMPACT & ANALYSIS
Indian Economy is recovering despite Global Slowdown
Despite the global headwinds in economic growth, most of the domestic High Frequency Indicators (HFIs) are showing strength in India. New CapEx, Record Exports post Covid Lockdown etc. have been the key factors for economic recovery.
Remarks: Geopolitical tensions, supply disruption of commodities, high inflation & interest rates, Covid Lockdown etc. are a major cause for global growth slowdown. However, the Indian Economy is showing resilience. Economic recovery post covid has not been highly dependent on fiscal & monetary policy expansion. Hence, the withdrawal of policy support may only affect us to a limited extent. Apart from this, a majority of the corporates have de-leveraged their balance sheets significantly.
The impact due to the interest rate hike on corporate balance sheets is expected to be low, excluding the ones which are still highly leveraged.
India’s export of Engineering Goods top $112 Bn. in FY22
The export of Engineering Goods was $76.63 Bn. in FY2020-21 and it has shown a massive growth of 46% in FY2021-22 due to exceptional price rise & high demand in auto components.
Remarks: Engineering Goods have been a major contributor of India’s export growth contributing 25% of our total goods export. Engineering goods exports mainly comprise auto ancillaries and automobile exports. High demand and price rise in auto components across the globe has benefited Indian Engineering Goods as well as Auto ancillary Industry.
Apart from Auto Ancillary, Indian auto OEMs especially the two-wheeler segment posted significant growth in export of two wheelers globally.
Revival of Credit Growth
India’s credit growth recently peaked around Sept'2018. Post the ILFS issue in the same month, credit growth showed a downtrend. It was again impacted due to COVID but it is showing significant signs of recovery currently.
Remarks: Credit line grows when certainty & sustainability are visible. Recently, during COVID lockdown, there was complete uncertainty of economic activity leading to a drastic fall in credit growth. Post COVID, credit growth is picking up due to uptake in corporate debt & CapEx expansion. It indicates a sustained recovery of the economy. Supply chain disruptions, China+1 global trends, higher power demand locally are tailwinds for higher CapEx, which in turn induces credit growth.
Retail credit was growing consistently since many years while now, corporate credit is also picking up.
FII Outflow continues, opportunities for Investment in Equity
FIIs continue to sell Indian equities and sold to the tune of ₹17,144 Cr in Apr'2022. They have sold ₹1.27 lakh Cr. in CY2022 till now.
Remarks: Historically, whenever foreigners sell Indian equities, it is an excellent opportunity to invest in Indian equities, since their selling is majorly forced due to various other reasons associated with their investments like global geo-political tension, raise in bond yields in US, rebalancing of MSCI indices etc.
Currently, they are in sell mode for the past 7 months consistently however, the markets have shown resilience since their selling is not intense but staggered. May has been slightly different – Furious selling by FIIs with the Fed Hike in rate coupled with the RBI rate hike stymieing DII investments. A double whammy indeed which we will need to cautiously watch.
Interest rate hike
US FED has raised the interest rate by 50 basis points and a day before, RBI has increased the repo rate by 40 basis points and surprisingly, increased the CRR by 50 basis points as well to suck out the liquidity from the system.
Remarks: Interest rate hikes are basically a negative for bond markets. In the short term, bond prices suffer and the yields on G-Sec will move upwards making the government borrowing costly. The Indian bond markets discounted this rate hike from Feb'2022 onwards and 10 year G-Sec yields moved up from 6.20% levels in Feb'2022 to the current 7.40%.
As an investor with asset allocations and future cash flows in mind, this rise in yield is negative for the short term. However, there will be an opportunity to lock the funds in debt at higher yields of around 8% levels going forward.
What you should do. And should not.
Please remember investing is mostly backing quality businesses run by quality managements that offer a runway for strong cash flow growth, earnings potential, and long-term prospects. Buying them at a “reasonable” price with an eye on the returns is important. Stay invested, stay disciplined and secure your returns. We have prepared a sound long term holistic financial plan for you based on your risk profile, defined your financial goals along with you… did an asset allocation (with contingency plans built in) with you. We believe we are in the best objective position to help navigate the vagaries of the market.