PERSONALISED INVESTMENT MANAGERS

Health of your Wealth Feb '22

09 March, 2022


          
            Health of your Wealth Feb '22

Portfolio Impact Assessment

FEBRUARY 2022

Positive Negative Neutral

PARAMETERS, EVENTS IMPACT REASON
Inflation (CPI - India) Inflation reached 6.01% in Jan '2022 breaching RBI's upper tolerance level of 6%. High food inflation along with an unfavourable base were the main contributor.
Brent Crude Brent crude prices appreciated by 11% In Feb '2022
Currency INR USD INR depreciated by 1.3% in Feb '2022
GDP GDP grew 5.4% in Q3FY22. The growth rate has slowed down due to the impact of covid third wave and higher base level.
FII Inflows FIIs were Net-Sellers of Indian equities to the tune of ₹35,592 Cr in Feb '2022.
DII Inflows DIIs poured ₹42,084 Cr into Indian equities in Feb '2022
G-Sec Yield Yield moved from 6.68% to 6.77% in Feb '2022 end.
Tax Collection Record high GST collection of ₹1.33 Lakh Cr in Feb '2022
Global - Inflation In USA, inflation @ 7.5% in Feb, 2022 is the highest reading in 40 years

EQUITY MARKETS IMPACT REASON
Q2 FY22 Earnings Session Most companies earnings are higher than estimates,
Valuations-PE It is 25% off from recent peak levels of the market @ Oct '2021
Valuations-PB It is 11% off from recent peak levels of the market @ Oct '2021
Valuations-Market cap to GDP Ratio Current market cap to GDP ratio is at 109%. It is above its long-term average of 76% but below global average of 131%.

High Risk Moderate Risk Low Risk

RISK FOR EQUITIES LEVEL OF RISK
US FED-Interest Rate Hike
Current Valuations
US FED-Tightening
Commodity Price Inflation
RBI-Sucking out Liquidity
Geo Political Tension
FII's Being a Net-Seller



5 Things That Will Impact The Health Of Your Wealth

EVENTS, NATURE OF IMPACT & ANALYSIS

1.

Impact of Russia-Ukraine Conflict

Amidst the on-going Russia-Ukraine conflict, volatility has increased in the equity market. The Sensex corrected more than 10% from its all-time high touched in Oct '2021.

IMPACT: NEGATIVE

Remarks: Everyone expected the markets to correct due to foreseen “Known risks” like high valuations, shrinking of the balance sheet by the FED, the rate hike in the US, higher inflation, etc. However, it was an “Unknown risk” that took the market down. Nobody expected this conflict between Russia and Ukraine and that it could cause the current correction. But, as history has shown, with every conflict/war, there is also an earning opportunity by investing more into equity as the below data shows.


2.

Soaring Commodity Prices – Global Supply Concern

There is a massive surge in commodity prices i.e oil touched $130 per barrel, aluminium, coal, natural gas are all hitting all-time highs in global markets.

IMPACT: NEGATIVE

Remarks: Russia’s contribution to global commodity supply

    • Coal - Russia accounts for almost 18% of global supply.
    • Aluminium – Russia accounts for 40% of global supply.
    • Crude Oil – Russia accounts for 12% of global supply.
    • Natural gas – Russia accounts for 17% global supply.
    • Palladium (key raw material for semi-conductors) – Russia accounts for 40% of global supply.
    • Neon (key raw material for semi-conductor chips) – Ukraine accounts for 70% of global supply.
    • Apart from this, Russia as well as Ukraine contributes significantly on fertilizers, wheat and Barley exports to the globe.

Due to the war and subsequent sanctions on Russia, there is/ will be shortage of commodity supply globally and the markets are already discounting the same. There is a massive spike in prices leading to a spike in inflation across the globe. This commodity short supply will cause a disruption in sectors like Automobiles, electricity, etc.


3.

India’s GDP Growth Slowed Down in Q3FY22, Still out performs EMs

India’s GDP growth for Q3 FY22 stood at 5.4% against 8.4% in the previous quarter.

IMPACT: NEGATIVE

Remarks: GDP growth slowed down due to drop in the economic momentum during covid third wave, less demand and high base effect. The growth for FY2022 has also been revised to 8.9% from 9.2%. Economists expect a 4.8% growth in Q4, which means, a further slowdown is expected due to the impact of covid third wave and the ongoing war.


4.

Corporate Earnings

Many of the companies in Nifty 50 have beaten the estimates in Q3 FY22 in terms of both sales and earnings.

IMPACT: POSITIVE

Remarks: The growth was driven by lower interest rate, tax cuts, tighter working capital etc. This is a good sign for the market.

However, rising crude oil & commodity prices will hurt corporate earnings. Despite the top-line sales growth, EBITDA margins have compressed due to high commodity prices. Sectors like Cement, Tyres, Paints, Cables & Wires etc. have shrunk their EBITDA margins by 5% or more in absolute terms on YoY basis.


5.

Robust Tax Collection in India

In the month of Feb '2022, the GST collection was ₹1.33 lakh crore. GST collection continued to remain above ₹1.30 lakh crore mark for the fifth consecutive month. Further, Cess collection stood at ₹10,340 crore and crossed ₹10,000 crore mark for the first time since it was implemented.

IMPACT: POSITIVE

Remarks: Higher tax collections (also attributed to higher inflation) leads to lower market borrowing for Government. The same is expected to keep the G-Sec yields under check. The consensus is that the Government’s tax collection expectation for next FY23 is conservative. Higher tax collection is a positive surprise for everyone in general and after many years, tax collections have crossed the estimates.


ACTIONS FOR ALPHA RETURNS

What you should do. And should not.

Remain invested in equity in this current volatile market scenario.

Continue your SIPs and STPs, Don’t try to time the markets. Caveat: You may get NO returns over the next 1 to 2 years.

ADD money on market dips If you are adding surplus funds to equity during this ongoing correction, do it in multiple tranches.

We hope that your short-term fund requirements are already in place. DON’T exit the current volatile equity markets to create this.



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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