PERSONALISED INVESTMENT MANAGERS

Health of your Wealth Dec '21

13 January, 2022


          
            Health of your Wealth Dec '21

Portfolio Impact Assessment

DECEMBER 2021

Positive Negative Neutral

PARAMETERS, EVENTS IMPACT REASON
Inflation (CPI - India) It was 4.91% in Nov '21 V/s 4.48% in Oct '21 and Inflation is still being within RBI's target of 2%-6% band
Brent Crude Brent prices appreciated by 10% In Dec '21
Currency INR USD INR appreciated by 0.8% in Dec '21
GDP GDP grew 8.4% in Q2 FY22
FII Inflows FIIs were Net-Sellers of Indian equities to the tune of ₹19026 Cr 
DII Inflows DIIs poured ₹4420 Cr into Indian equities in Dec '21
G-Sec Yield Yield moved from 6.32% to 6.45% in Dec '21 end
Tax Collection Higher GST collection continues with more than ₹1 Lakh Cr for the 6th month in a row
Global - Inflation In USA, inflation is 6.8% in Nov '21 and it is the highest reading in past 40 years

EQUITY MARKETS IMPACT REASON
Q2 FY22 Earnings Session Earnings are marginally higher than estimates
Valuations-PE It is almost 10% off from historical peak
Valuations-PB It is historical peak levels
Valuations-Market cap to GDP Ratio It is historical peak levels

High Risk Moderate Risk

RISK FOR EQUITIES LEVEL OF RISK
US FED-Interest Rate Hike
Current Valuations
US FED-Tightening
Commodity Price Inflation
RBI-Sucking out Liquidity



5 Things That Will Impact The Health Of Your Wealth

EVENTS, NATURE OF IMPACT & ANALYSIS

1.

US FED will tighten balance sheet

US FED has indicated that along with the interest rate hike in 2022, they intend to reduce the US FED’s balance sheet.

Excess liquidity injected by them in past 21 months will be sucked out, however the quantum is not decided yet.

US FED will tighten balance sheet in addition to hiking interest rate in 2022 and eventually reducing excess liquidity.

Any Excess valuations / fundamentally poor stocks will correct to the mean. Volatility will spike.

IMPACT: NEGATIVE

Remarks: Markets, in the short term will drop as liquidity is oxygen for equities. Any Excess frothy valuations / fundamentally poor stocks will correct now to the mean. Volatility will spike.


2.

FII Outflows

FIIs were net-sellers of ₹38521 Cr Indian equities (Oct-Dec '21)

IMPACT: NEGATIVE

Remarks: Perceived overvaluation of Indian equities vs. relatively attractive valuations of Chinese equities made FII’s rebalance portfolios towards China.

USD strengthening due to the FED rate hike also accounted for FII outflows.

NIFTY & SENSEX corrected by a maximum of 11% in at some point in Dec '21. Stocks where FII’s ownership was high - Financials corrected significantly in this period.


3.

Spreading of Covid variant Omicron

USA is now reporting around 7 lakh cases every day while India is now touching a lakh

IMPACT: NEUTRAL

Remarks: Omicron variant looks to be less severe. Need for hospitalization is minimal and Fatality rates are low.
This won’t have a major impact on economy, businesses or markets.


4.

Accenture’s strong earnings in USA

Accenture reported its quarterly earnings with 27% YoY growth in revenue, 28% growth in EPS, 30% growth in new order booking. More importantly, Accenture has revised its year 2022 guidance of revenue growth to 19%-22% from earlier revenue growth guidance of 12%-15%.

IMPACT: POSITIVE

Remarks: This is like a barometer to understand the underlying trend of business momentum for Indian IT services companies i.e TCS, Infosys, HCL, Tech Mahindra, Wipro etc. Improvement in Accenture’s revenue guidance is spectacular and In Q3 FY22 – Indian IT services companies are expected to post stronger growth, despite Q3 being a seasonally weaker quarter.

Consistent growth momentum of Indian IT Services companies are one of the reason for the past 21 months bull markets.


5.

India’s 10 year G-Sec yield moved up from 6.32% in Nov '21 to 6.45% in Dec '21 end.

IMPACT: NEGATIVE

Remarks: As per the yield curve movement, Bond markets seems to have discounted the interest rate hike from here onwards. FIIs have also sold ₹11799 Cr of Indian G-Sec and this intense selling may also have triggered the yield curve movement.


5 Things That Will Impact The Health Of Your Wealth

EVENTS, NATURE OF IMPACT & ANALYSIS

1.

US FED will tighten balance sheet

US FED has indicated that along with the interest rate hike in 2022, they intend to reduce the US FED’s balance sheet.

Excess liquidity injected by them in past 21 months will be sucked out, however the quantum is not decided yet.

US FED will tighten balance sheet in addition to hiking interest rate in 2022 and eventually reducing excess liquidity.

Any Excess valuations / fundamentally poor stocks will correct to the mean. Volatility will spike.

IMPACT: NEGATIVE

Remarks: Markets, in the short term will drop as liquidity is oxygen for equities. Any Excess frothy valuations / fundamentally poor stocks will correct now to the mean. Volatility will spike.


2.

FII Outflows

FIIs were net-sellers of ₹38521 Cr Indian equities (Oct-Dec '21)

IMPACT: NEGATIVE

Remarks: Perceived overvaluation of Indian equities vs. relatively attractive valuations of Chinese equities made FII’s rebalance portfolios towards China.

USD strengthening due to the FED rate hike also accounted for FII outflows.

NIFTY & SENSEX corrected by a maximum of 11% in at some point in Dec '21. Stocks where FII’s ownership was high - Financials corrected significantly in this period.


3.

Spreading of Covid variant Omicron

USA is now reporting around 7 lakh cases every day while India is now touching a lakh

IMPACT: NEUTRAL

Remarks: Omicron variant looks to be less severe. Need for hospitalization is minimal and Fatality rates are low.
This won’t have a major impact on economy, businesses or markets.


4.

Accenture’s strong earnings in USA

Accenture reported its quarterly earnings with 27% YoY growth in revenue, 28% growth in EPS, 30% growth in new order booking. More importantly, Accenture has revised its year 2022 guidance of revenue growth to 19%-22% from earlier revenue growth guidance of 12%-15%.

IMPACT: POSITIVE

Remarks: This is like a barometer to understand the underlying trend of business momentum for Indian IT services companies i.e TCS, Infosys, HCL, Tech Mahindra, Wipro etc. Improvement in Accenture’s revenue guidance is spectacular and In Q3 FY22 – Indian IT services companies are expected to post stronger growth, despite Q3 being a seasonally weaker quarter.

Consistent growth momentum of Indian IT Services companies are one of the reason for the past 21 months bull markets.


5.

India’s 10 year G-Sec yield moved up from 6.32% in Nov '21 to 6.45% in Dec '21 end.

IMPACT: NEGATIVE

Remarks: As per the yield curve movement, Bond markets seems to have discounted the interest rate hike from here onwards. FIIs have also sold ₹11799 Cr of Indian G-Sec and this intense selling may also have triggered the yield curve movement.


ACTIONS FOR ALPHA RETURNS

What you should do. And should not.

Remain invested in equity for the long term BUT a 20%, correction is possible at anytime

Continue your SIPs and STPs, dont try to time the markets BUT you may get NO returns over 1 to 3 year period

Create Cash NOW if you need money in the short term

ADD money on market dips if you are a Long Term Investor



Conclusion:

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.


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