PERSONALISED INVESTMENT MANAGERS

Health of Your Wealth Dec '22

16 January, 2023


          
            Health of Your Wealth Dec '22

Most of the news for the end of the year is positive for investors while during the year we worried that it might not all be hunky dory. The proverbial “All’s well that ends well!”

Portfolio Impact Assessment

December'2022

Positive Negative Neutral

PARAMETERS, EVENTS IMPACT REASON
Inflation (CPI - India) Inflation slightly decreased at 5.88% in Nov, 2022 from 6.77% reached in Oct, 2022. Finally, it has come below RBI's upper tolerance level of 6%.
Brent Crude Brent crude prices decreased by 1.79% In Dec, 2022 trading below $90.
Currency USD/INR Rupee depreciated by 1.65% in Dec, 2022
FII Inflows FIIs were Net-buyers of Indian equities of ₹ 11,119 Cr in Dec, 2022.
DII Inflows DIIs poured ₹ 24,159 Cr worth of Indian equities in Dec, 2022
G-Sec Yield Yield slightly increased to 7.32% from 7.28% in Dec, 2022 end.
Global - Inflation US inflation has slightly cooled off at 7.1% in Nov 2022 from 7.7% in Oct,2022.
EQUITY MARKETS IMPACT REASON
Valuations-PE It stood at 21.79 times in Dec 2022, 29.28% below the Oct, 2021 peak.
Valuations-PB It stood at 4.25 times in Dec 2022, 8.94% below the Oct, 2021 peak.
Valuations - Market cap to GDP ratio Current market cap to GDP ratio is at 108%. It is above its long-term average of 79% and above the global Mcap/GDP ratio of 102%.

High Risk Moderate Risk Low Risk

RISK FOR EQUITIES LEVEL OF RISK
Geopolitical tension
US FED - Tightening
US FED - Interest rate hike
RBI-Sucking out liquidity
Current Valuations

5 Things That Will Impact The Health Of Your Wealth

EVENTS, NATURE OF IMPACT & ANALYSIS

1.

Sensex Closed Positive in 2022 amidst all the macro headwinds

Sensex closed 4%+ YoY in a news-heavy year.

IMPACT: POSITIVE

Remarks: Year 2022 was a tough year for equity markets. A series of global macro headwinds kept investors in chaos. Chronologically, news of the Russia-Ukraine war, a dramatic surge in crude oil prices, supply chain issues due to both war & an extensive Chinese lockdown (zero covid policy), a surge in global inflation, rate hikes by central banks globally and appreciation of the US Dollar against other currencies, disrupted economies all over the globe.

Despite these adverse events, Sensex closed the year with a positive return of 4% in 2022. The data shows that despite the volatility and noise every year, the Sensex has closed positive 77% of the time in the last 43 years on a YoY basis.

A balanced mind and a systematic approach to equity investment is the key to sustainable alpha returns even during turbulent times.

2.

Domestic Investors Continued to be Resilient in 2022

FPIs took out ₹ 1.21 L Cr in 2022 – highest ever selling by FPIs in a CY while domestic investors poured ₹ 2.75 L Cr into Indian equity market - highest ever inflow in a CY.

IMPACT: POSITIVE

Remarks: From April, 2020 to Sept, 2021 (from the market bottom due to Covid), while FPIs poured ₹ 2.82 Lakh Cr in Indian equities, they pulled out 90%+ (₹ 2.55 lakh Cr) from Indian equities in the next 9 months (all-time high in Oct, 2021 to subsequent bottom in June, 2022).

Despite the massive sell off by FIIs, domestic investors poured in 2X to buy Indian equities making our markets more resilient.

3.

Opportunities in Debt Investment Continues

India’s 10-year bond yield is hovering around 7.4% since Jun, 2022.

IMPACT: POSITIVE

Remarks: Generally, we seek an inflation adjusted return on investment. However, there are only a few asset classes which have the potential to generate inflation adjusted returns. Debt as an asset class, generally meets inflation rates but rarely beats it. At the same time, it provides a guaranteed cash flow unlike equity.

Guaranteed cash flow requirement for next 15-20 years should be addressed by investing in long-term debt since long term G-Sec yield is now hovering around 7.4% level and it is expected to trade at the same level and provide an investment opportunity in the year 2023. As a general concept, post-tax return from debt should be in line with the prevailing inflation with a cushion of 50 bps either side (+ /-).

4.

Evergreen Gold Is Shining Again

Central banks across the world are stockpiling gold at a record level.

IMPACT: POSITIVE

Remarks: Year 2022 was full of rate hikes by central banks globally and as a result demand for debt investment went up drastically. Attractive FED rates pushed demand of US treasuries around the world. As we know that there is an inverse correlation between dollar index (DXY) and gold, bullish DXY kept the demand for gold muted.

But, the US sanctions on Russia raised concerns amongst Russia’s trade partners and Gold was chosen to bypass the dollar-based payment system SWIFT. Countries like Turkey and Uzbekistan topped the list in accumulating gold in 2022.

Countries want to hedge against the looming risk of recession, against economic uncertainty, against the probability of geopolitical issues. And gold as a safe asset class will play this role effectively.

5.

Record Direct Tax Collection in FY2022-23

Govt. of India has already collected more than 85% of its FY2022-23 estimation just in 3 quarters (till 10th Jan 2023).

IMPACT: POSITIVE

Remarks: The Centre’s estimate (for 2022-23) was a collection of ₹ 14.2 lakh crore in direct taxes ₹ 7.2 lakh crore in corporate tax and ₹ 7 lakh crore in personal income tax.

The data shows that majority of the tax collection comes in the 2nd half of the FY. We have already crossed 85% of the estimate by end Q3 (till 10th Jan). It is expected that total collection for FY2022-23 would cross 120% of the estimate.

“Gross Direct Tax collections for FY 2022-23 upto 10th January,2023 are at ₹ 14.71 lakh crore, higher by 24.58% over gross collections for corresponding period of preceding year. Net collections at ₹ 12.31 lakh crore is 19.55% higher than net collections for same period last year.” -IT Department.

 

ACTIONS FOR ALPHA RETURNS

What you should do. And should not.

Remain invested in equity in this current volatile market scenario.

Continue your investment
systematically in the way of SIP & STP.

There are opportunities in long-term debt, lock the fund for regular inflow.

Do not go all-in into equities in this highly volatile period. Add money on market dips. But do it in multiple tranches.



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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