PERSONALISED INVESTMENT MANAGERS

Health of your Wealth Mar '22

13 April, 2022


          
            Health of your Wealth Mar '22

Portfolio Impact Assessment

MARCH 2022

Positive Negative Neutral

PARAMETERS, EVENTS IMPACT REASON
Inflation (CPI - India) Inflation reached 6.07% in Feb '2022 breaching RBI's upper tolerance level of 6%. High food inflation along with an unfavourable base was the main contributor.
Brent Crude Brent crude prices appreciated by 8% In Mar '2022
Currency INR USD INR depreciated further by 0.5% in Mar '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 (41,123 Cr) in Mar '2022.
DII Inflows DIIs were net buyers in Indian equities (39,677.03 Cr) in Mar '2022
G-Sec Yield Yield moved from 6.77% to 6.84% in Mar '2022 end.
Tax Collection Record high GST collection (1.42 Lakh Cr) in Mar '2022
Global - Inflation In US inflation is 7.9% in Feb '2022 (highest reading in past 40 years)

EQUITY MARKETS IMPACT REASON
Q2 FY22 Earnings Session Most companies earnings are higher than estimates,
Valuations-PE It is 18.63% off from recent peak levels of the market @ Oct '2021
Valuations-PB It is just 4% off from recent peak levels of the market @ Oct '2021
Valuations-Market cap to GDP Ratio Current Market cap to GDP ratio is at 115%. It is above its long-term average of 76% but below global average of 134.7%.

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.

Global Dominance of the USD is reducing

Amid the Russia-Ukraine conflict, the sanctions imposed by USA on Russia has triggered an emergence of a trust deficit between the US & other countries. Russia’s decision to trade oil only with the ruble has damaged the demand of USD to a certain extent while increasing the demand of Gold to buy rubles

IMPACT: NEUTRAL

Remarks: Most commodity sellers use the USD as a pricing mechanism for global trade because of the United States' strong, stable economy. US’ sanction to BLOCK Russia’s dollar reserve, which is kept in the US treasury, has sparked a trust deficit among other countries.

*The IMF data shows, over the last two decades, USD’ share in international reserve has fallen from 70% to 60%. However, taking over from the USD as a global currency will take time as it still dominates with no clear challenger nearby.


2.

Rising Inflation & Interest Rates – A Global Concern

Growing global inflation is a huge concern caused by high commodity prices. The geo-political risks from the ongoing Russia-Ukraine conflict have triggered a commodity price shoot-up to all-time highs.

IMPACT: NEUTRAL

Remarks: Rising inflation has forced central banks across the globe to raise interest rates, contributing to volatility in equity as well as debt markets.

*An increasing interest rate creates less business opportunities and hence causes growth to slow down globally. As the data shows, the GDP growth rate of major economies are expected to fall which is mainly attributed to inflation and rising interest rate.

Inflation creates volatility in equity market in short-term. However, long-term impact will be intact as equity returns are derived from 'Inflation + GDP'.


3.

Global Bond Index - Worst Draw Down ever

The Bloomberg Global Bond Index has experienced the worst draw down ever, at the back of rising interest rates.

IMPACT: NEGATIVE

Remarks: There is an inverse correlation between interest rate and bond yield. When interest rates go up, yield from existing bonds will fall. As mentioned above, central banks are raising interest rates across the globe, affecting the bond yield.

* Point to be noted - The size of Global Negative Yielding Debt has drastically come down to $3 Trillion from $18 Trillion in 2020-21. Demand for bonds is coming down.


4.

Rising Capex across Sectors in India

Capital Expenditure has increased substantially in Mar quarter with announcement of new projects.

IMPACT: POSITIVE

Remarks: Low interest rate regime in India, Govt’s initiative to promote Atmanirbhar Bharat through PLI schemes and deleveraging of Indian corporates have been a key driver for investments.

Further, manufacturing companies moving out of China have also been beneficial for investments in India.


5.

Worst FII Selling since 2008 – Retail Investors Stand Strong

There is consistent selling by FIIs from last six months. FIIs have sold to the tune of ₹1.48 lakh Cr in past six months from Oct, 2021 to Mar, 2022.

IMPACT: NEUTRAL

Remarks: FIIs have sold their highest ever since the 2008 global financial crisis. In the MSCI Emerging Market portfolio, allocation to India is around 16% vs the 5-year average weightage of 10%. As a result, profit booking and portfolio rebalancing happened during this period by the FIIs.

But contra to the FII exit, the participation of Indian retail investors has increased considerably. Individually they were small in number but collectively they are a force. The volatility has been in range to some extent, thanks to them.

1.

Global Dominance of the USD is reducing

Amid the Russia-Ukraine conflict, the sanctions imposed by USA on Russia has triggered an emergence of a trust deficit between the US & other countries. Russia’s decision to trade oil only with the ruble has damaged the demand of USD to a certain extent while increasing the demand of Gold to buy rubles

IMPACT: NEUTRAL

Remarks: Most commodity sellers use the USD as a pricing mechanism for global trade because of the United States' strong, stable economy. US’ sanction to BLOCK Russia’s dollar reserve, which is kept in the US treasury, has sparked a trust deficit among other countries.

*The IMF data shows, over the last two decades, USD’ share in international reserve has fallen from 70% to 60%. However, taking over from the USD as a global currency will take time as it still dominates with no clear challenger nearby.


2.

Rising Inflation & Interest Rates – A Global Concern

Growing global inflation is a huge concern caused by high commodity prices. The geo-political risks from the ongoing Russia-Ukraine conflict have triggered a commodity price shoot-up to all-time highs.

IMPACT: NEUTRAL

Remarks: Rising inflation has forced central banks across the globe to raise interest rates, contributing to volatility in equity as well as debt markets.

*An increasing interest rate creates less business opportunities and hence causes growth to slow down globally. As the data shows, the GDP growth rate of major economies are expected to fall which is mainly attributed to inflation and rising interest rate.

Inflation creates volatility in equity market in short-term. However, long-term impact will be intact as equity returns are derived from 'Inflation + GDP'.


3.

Global Bond Index - Worst Draw Down ever

The Bloomberg Global Bond Index has experienced the worst draw down ever, at the back of rising interest rates.

IMPACT: NEGATIVE

Remarks: There is an inverse correlation between interest rate and bond yield. When interest rates go up, yield from existing bonds will fall. As mentioned above, central banks are raising interest rates across the globe, affecting the bond yield.

* Point to be noted - The size of Global Negative Yielding Debt has drastically come down to $3 Trillion from $18 Trillion in 2020-21. Demand for bonds is coming down.


4.

Rising Capex across Sectors in India

Capital Expenditure has increased substantially in Mar quarter with announcement of new projects.

IMPACT: POSITIVE

Remarks: Low interest rate regime in India, Govt’s initiative to promote Atmanirbhar Bharat through PLI schemes and deleveraging of Indian corporates have been a key driver for investments.

Further, manufacturing companies moving out of China have also been beneficial for investments in India.


5.

Worst FII Selling since 2008 – Retail Investors Stand Strong

There is consistent selling by FIIs from last six months. FIIs have sold to the tune of ₹1.48 lakh Cr in past six months from Oct, 2021 to Mar, 2022.

IMPACT: NEUTRAL

Remarks: FIIs have sold their highest ever since the 2008 global financial crisis. In the MSCI Emerging Market portfolio, allocation to India is around 16% vs the 5-year average weightage of 10%. As a result, profit booking and portfolio rebalancing happened during this period by the FIIs.

But contra to the FII exit, the participation of Indian retail investors has increased considerably. Individually they were small in number but collectively they are a force. The volatility has been in range to some extent, thanks to them.

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.

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

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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