Positive Negative Neutral
|Inflation (CPI - India)
|Inflation decreased at 5.66% in Mar, 2023 from 6.44% reached in Feb, 2023.
|Brent crude prices decreased by -3.78% In Mar, 2023.
|Rupee appreciated by 0.58% in Mar, 2023.
|FIIs were Net-buyers of Indian equities to the tune of Rs.7,936 Cr in Mar, 2023.
|DIIs poured Rs.30,549 Cr in to Indian equities in Mar, 2023.
|Yield slightly decreased to 7.315% from 7.457% in Mar, 2023 end.
|Global - Inflation
|US inflation has slightly cooled off at 5% in Mar 2023 from 6% in Feb 2023.
|It stood at 20.44 times in Mar 2023, -37.82% below the Oct, 2021 peak.
|It stood at 4.05 times in Mar 2023, -14.32% below the Oct, 2021 peak.
|Valuations - Market cap to GDP ratio
|Current market cap to GDP ratio is at 94%, above its long-term average of 79% but below the peak valuation of 112% in FY 2022.
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
FED Rate hike in the US has not fully passed-on into the Economy
A total of 475 bps hike in interest rates within a span of 1 year is a big thing in the US, however, it has not fully been transmitted into the US economy.
Remarks: As the data shows, credit card interest rates have gone up since the rate hike and are trending at the decade high as on Q4 2022. Some source has mentioned that it is now trending around 23%.
whereas the rates for new car loan and personal loan has not yet gone up in parallel to the FED rate hike. It shows that the 475 bps hike in the FED rate has not been fully passed-on into the economy. It is likely that the interest rates may go up further biting consumption.
Outlook on Oil
OPEC has cut production; however, the primary trend of crude oil price is southwards.
Remarks: Although OPEC decided to cut production to bring stability in the oil price rather than inflating it, oil price is trending negatively due to the expected low demand. A high interest rate scenario and global liquidity tightening is expected to lower the demand for oil. The recent spike in the oil price is only seen as a sentimental move as the production cut was announced.
However, strategic oil reserves in the US are depleting, and hence they may start buying oil, in which case we may see a higher spike in the price momentum. Due to this dynamic nature, we are likely to see short-term volatility in the portfolio as well.
Gold is shining BRIGHTEST ever!
Price of gold is trading around all time high as of 31 Mar, 2023.
As per the World Gold Council data, annual gold demand (excluding OTC) increased 18% to 4,741t, nearly matching 2011's record-high investment demand. The robust annual total was boosted by a record 1,337t Q4 demand. It is mainly due to the surge in demand by the central banks across the globe.
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. We had explained it in ourDec 2022 Health of your Wealthreport as well.
Countries are hedging against a 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.
However, the key risk to the gold price in India is a cut in the import duty which investors should keep an eye on.
Big Blow for the Debt MF Investors
The recent amendment to the Finance Bill 2023 has put an end to the indexation benefits of Debt MF. Investors can no longer enjoy the benefit of a flat 20% tax rate.
It is amended that all mutual funds having 35% or less exposure to domestic (Indian) equity, acquired on or after 01-Apr-2023 will be taxed at the individual slab rate of investors. Till the end of FY2022-23, debt-oriented MFs enjoyed a flat rate of 20% along with the indexation benefit and hence had an competitive edge over bank FDs.
“Income earning instruments should be treated as income earning instruments, that is the direction in which it is going.”
~ Finance secretary T V Somanathan
We are of the view that most investments having the sole purpose of tax benefits have been removed and going forward, we must look at any investment basis it’s merit and not merely for any tax advantage.
Indian Economy is at a Sweet Spot
The current account deficit has narrowed to 2.2% of the FDP in Q3 FY 2022-23 as compared to 4.4% in the previous quarter.
Current account deficit (CAD) is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports. In simple term, it is the difference between the inflow and outflow of foreign exchange. According to the data released by the RBI, India’s CAD has dropped to $18.2 Billion which is 2.2% of the GDP. It is mainly contributed by a surplus between our software exports vs oil imports.
Further, it will help in stabilizing currency volatility as our net outflow of USD has fallen. RBI has been increasing the interest rates in line with the US FED to maintain the stability in INR, and this narrowed CAD will support it further.
The anti-thesis to it could be a further rate hike by the FED, a trend reversal in the oil & gold price along with FII outflows from Indian equities, in which case we may see large outflow of USD again.
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.