PERSONALISED INVESTMENT MANAGERS
Positive Negative Neutral
|Inflation (CPI - India)||Inflation slightly cooled-off at 7.04% in May'2022 from 7.79% reached in Apr'2022. Still remains above RBI's upper tolerance level of 6%.|
|Brent Crude||Brent crude prices slightly corrected by 5% In Jun'2022|
|Currency INR USD||INR depreciated by 2% in Jun'2022.|
|GDP||GDP growth of India is reported at 8.7% for FY22, making India the fastest growing major economy.|
|FII Inflows||FIIs were Net-Sellers of Indian equities to the tune of ₹50,203 Cr in Jun'2022.|
|DII Inflows||DIIs poured ₹46,599 Cr into Indian equities in Jun'2022|
|G-Sec Yield||Yield moved to 7.45% from 7.14% in Jun'2022 end.|
|Tax Collection||Record GST collection of ₹1.44 Lakh Cr in Jun'2022.|
|Global - Inflation||In USA, inflation is at 8.6% in May'2022, highest reading in past 40 years.|
|Valuations-PE||It stood at 19.5 in Jun'2022, 30.78% off from peak of the market in Oct'2021.|
|Valuations-PB||It stood at 4.03 in Jun'2022, 13% off from peak of the market in Oct'2021.|
|Valuations-Market cap to GDP Ratio||Current market cap to GDP ratio is at 93%. It is above its long-term average of 79% but below global average of 103%.|
High Risk Moderate Risk Low Risk
|RISK FOR EQUITIES||LEVEL OF RISK|
|Rising Oil prices & Commodity inflation|
|FII's being a Net-Seller|
|US FED - Tightening|
|US FED - Interest rate hike|
|RBI-Sucking out liquidity|
EVENTS, NATURE OF IMPACT & ANALYSIS
Dr. Copper Indicating Recession?
Copper slid to an almost 2-year low collapsing 20% from its most recent peak. Not just copper but most industrial metals have seen a sharp correction signalling a slowing down of economic growth.
Remarks: Copper price is proportional to economic growth and inflation, and that’s why it is called Dr. Copper in macroeconomics. It indicates aggregate demands in the economy. Historically, weaker copper prices have coincided with downward trend in economic growth and inflation. Even market driven inflation expectations are falling along with copper. Let’s be prepared for a softening in the inflation reading of H2, 2022. This is the prognosis from Dr. Copper.
US Inflation Highest Since 1981
Consumer price index rose 8.6% in May'2022 annually, +1% up from Apr'2022.
Remarks: Inflation in the US accelerated to a 4 decade high in May month. a sign of price pressures being established in the economy. Shelter, Food and Energy were key contributors to the rise in inflation.
US FED Raised Interest Rate by 75bps in Jun'2022 to curb inflation - Biggest Hike Since 1994. The action raised the short-term FED rates to a range of 1.5% to 1.75%. We are of the view that the FED is way behind the curve and more rate hikes are expected in near term. With the rise in FED Fund Rate, FIIs continue to sell Indian as well as emerging market equities, moving to the US Treasury (a safe haven).
FIIs Outflows Continues
FII sold ₹50,203 cr. in the month of Jun'2022 – Highest monthly outflow since Mar'2020 (during Covid).
Remarks: FIIs have sold Indian equity to the tune of ₹2.55L Cr. since the market peak in Oct'2021. Financials and IT together contribute more than 90% of the selling. In spite of this heavy selling, domestic investors are showing extreme resilience and poured nearly ₹3L Cr. since Oct'2021 (2.97L Cr. to be precise). We may see further outflows by FIIs during the upcoming rate hikes by US FED along with a strengthening of the USD.
Rate Hike is not equal to Market Fall
The recent rate hike by RBI as well as US FED has been one of the major factors of market correction in short term.
Remarks: Rise in policy rates attract equity investors to move their investment to safer Govt securities. Historically, people take out money from equity to invest in G-Sec during rate hikes. But it is only for the short term. In the long term, data shows that equity market has given significant return during rate hikes.
However, we need to view this data “market return during rate hike cycle” with a pinch of salt since market returns are not based only on interest rates. Other factors may have also supported growth during such period. Markets discount an event & a foreseen impact earlier. Impact due to expected rate hike might have already been discounted before the actual rate hikes. And during the actual event, markets may be discounting something which may occur in future.
|Time Frame||Interest Rate Phase||Policy Rate||Nifty Returns(Absolute)|
|18/09/2004||11/10/2008||Hike||Repo 6% to 9%||113.90%|
|11/10/2008||13/02/2010||Easing||Repo 9% to 4.75%||39.40%|
|13/02/2010||10/03/2012||Hike||Repo 4.75% to 8.50%||14.10%|
|10/03/2012||20/09/2013||Easing||Repo 8.50% to 7.25%||14.80%|
|20/09/2013||15/01/2015||Hike||Repo 7.25% to 8%||43.10%|
|15/01/2015||06/06/2018||Easing||Repo 8% to 6%||31.30%|
|06/06/2018||07/02/2019||Hike||Repo 6% to 6.50%||4.50%|
|07/02/2019||08/04/2022||Easing||Repo 6.5% to 4%||66.70%|
Valuation Indicators Look Attractive
Key valuation indicators like Price to Book (P/B) and Market cap to GDP are close to the 15-year long term average.
Remarks: On price to book basis, current markets are trading at 3.85X on trailing basis & On 1 year forward basis, current markets are trading at 2.8X. On Market cap to GDP basis, current markets are trading at 93%. As per the traditional valuation metrics, the excesses are completely off now. If there is another 10% correction from here, valuations will be even more attractive.
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.