Positive Negative Neutral
|Inflation (CPI - India)||Inflation slightly decreased at 5.72% in Dec, 2022 from 5.88% reached in Nov, 2022. It has come below RBI's upper tolerance level of 6% in Nov, 2022.|
|Brent Crude||Brent crude prices decreased by 0.21% In Jan, 2023 trading around $85.|
|Currency USD/INR||Rupee appreciated by 1.18% in Jan, 2023|
|FII Inflows||FIIs sold Indian equities to the tune of Rs.28,852 Cr in Jan, 2023.|
|DII Inflows||DIIs poured Rs.33,412 Cr in to Indian equities in Jan, 2023.|
|G-Sec Yield||Yield slightly increased to 7.34% from 7.32% in Jan, 2023 end.|
|Global - Inflation||US inflation has slightly cooled off at 6.5% in Dec 2022 from 7.1% in Nov,2022.|
|Valuations-PE||It stood at 20.73 times in Jan 2023, 35.89% below the Oct, 2021 peak.|
|Valuations-PB||It stood at 4.14 times in Jan 2023, -11.84% below the Oct, 2021 peak.|
|Valuations - Market cap to GDP ratio||Current market cap to GDP ratio is at Current market cap to GDP ratio is at 100%, above its long-term average of 79%.|
High Risk Moderate Risk Low Risk
|RISK FOR EQUITIES||LEVEL OF RISK|
|US FED - Tightening|
|US FED - Interest rate hike|
|RBI-Sucking out liquidity|
EVENTS, NATURE OF IMPACT & ANALYSIS
Are The Rats Leaving A Sinking Ship?
FIIs exit India; look towards other Emerging Markets
India’s valuation premium against other emerging markets especially MSCI Emerging Market Index has started correcting. A wide contraction is seen in the PE level.
Remarks: Some months ago, India was an oasis, a shining light of Emerging Markets equity performance. The India premium did not reflect India's outperformance as much as it did the stark underperformance of other Emerging Market (EM) peers.
The MSCI Emerging Markets Index gained 26% over the last 3 months, while the Nifty Index has remained flat. As a result, the premium that Indian equities had over their EM peers has eroded. However, the correction of this anomaly is a positive development for Indian equities, as FPI flows had become muted due to high valuations.
It Was Getting Lonely At The Top
We are at the same Sensex level as compared to the oct, 2021 peak. Indian equity market is in Consolidation Mode.
Remarks: Indian equities are undergoing time correction to digest their premium valuations. Despite the market being flat, sectoral leaderships have changed. IT & Commodities which led the index in the previous bull run have experienced significant correction while Banking & Auto are trending up, hence the index level balance has been maintained. However, we have not witnessed a rally in the market as there is no support from the other components of the index.
US Equities Are Feeling The Heat
Correction vs Valuation - Nasdaq 100 corrected 28% from its peak level in Nov, 2021.
As the chart shows, the Nasdaq 100, comprising big tech stocks, crashed by one-third from its peak due to a global slow down, high inflation and the Russia Ukraine conflict. While the technical indicators suggest that the index might have bottomed out, fundamental indicators say something else.
Remarks: As per the Market Cap to GDP ratio, Nasdaq traded above 200% during its peak, and while it has come down to 160% of the GDP, it is still highly overvalued. It indicates that the valuation has not yet settled and there could still be space for further contraction.
Nothing’s Getting Cheaper In The US
While inflation in the US has come down to 6.5% as of Dec, 2022, it is expected to remain elevated for some more time.
Remarks: Inflation was expected to come down over a period due to the correction in commodity prices as well as the higher base effect. We have witnessed it to some extent as the inflation has cooled-off from 9.1% to 6.5% now.
“Although inflation has moderated recently, it remains too high,” - Chairman Powell
However, since high-tech manufacturing (semiconductors) is moving to the US, inflation will be structural and may remain elevated (above 4%) for the medium term (3 years+). In this case, interest rates may stay at higher levels for longer periods.
Oh, It Is Finally Going To Reach Us!
The Global Supply Chain is Normalizing. A composite indicator of world container freight rates, shipping freight, and backlog of orders at major manufacturers has eased.
Remarks: The index, which peaked in mid-2021 but remained abnormally high throughout 2022, is now at pre-covid levels. This means that supply-side pressures have subsided in most markets, particularly those caused by disrupted supply chains. This should help in a faster drop in inflation, giving central banks more leeway to slow down the rate hikes.
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.