PERSONALISED INVESTMENT MANAGERS

Health of Your Wealth Nov '22

13 December, 2022


          
            Health of Your Wealth Nov '22

Portfolio Impact Assessment

November'2022

Positive Negative Neutral

PARAMETERS, EVENTS IMPACT REASON
Inflation (CPI - India) Inflation slightly decreased at 6.77% in Oct, 2022 from 7.41% reached in Sep, 2022. Still remains above RBI's upper tolerance level of 6%.
Brent Crude Brent crude prices decreased by 8% In Nov, 2022 trading below $90.
Currency USD/INR Rupee appreciated by 1.7% in Nov, 2022
FII Inflows FIIs were Net-buyers of Indian equities of Rs.36239 Cr in Nov, 2022.
DII Inflows DIIs sold Rs.6,301 Cr worth of Indian equities in Nov, 2022
G-Sec Yield Yield slightly decreased to 7.28% from 7.416% in Nov, 2022 end.
Global - Inflation US inflation has slightly cooled off at 7.7% in Oct 2022 from 8.2% in Sep,2022.
EQUITY MARKETS IMPACT REASON
Valuations-PE It stood at 22.54 times in Nov 2022, 20% below the Oct, 2021 peak and its 10 average of 24x.
Valuations-PB It stood at 4.40 times in Nov 2022, close to peak of the market in Oct, 2021 and above its 10 year average of 3.5x.
Valuations - Market cap to GDP ratio Current market cap to GDP ratio is at 110%. It is above its long-term average of 79% and above the global Mcap/GDP ratio of 103%.

High Risk Moderate Risk Low Risk

RISK FOR EQUITIES LEVEL OF RISK
Geopolitical tension
US FED - Tightening
US FED - Interest rate hike
RBI-Sucking out liquidity
Current Valuations

5 Things That Will Impact The Health Of Your Wealth

EVENTS, NATURE OF IMPACT & ANALYSIS

1.

India’s Q2 FY23 GDP Grows In line With Market Expectation

Nominal GDP expanded by 16.2% whereas Real GDP grew 6.3% YoY in Q2 FY 2022-23.

IMPACT: POSITIVE

Remarks: The real GDP data suggests that private consumption grew at 9.7% and real investment grew 9.2%, contributing 5.5 percentage point (pp) and 3.2pp to overall GDP growth. But, government consumption contracted by 4.4% leading to a negative (-0.4pp) contribution to the GDP growth. With this, the real GDP growth stood at 9.7% YoY in 1HFY23.

However, a sharp contraction in the manufacturing sector in Q2 FY23 and an impact on domestic savings due to high inflation in 1HFY23 is leading to a market expectation of muted 4.5% GDP growth in 2HFY23.


2.

Q2 FY23 Corporate Earnings

Corporate earnings for Q2 beat expectations with a broad-based growth across sectors.

IMPACT: POSITIVE

Remarks: The corporate earnings for Q2 FY23 were better than the market’s expectations, despite several headwinds, with financials driving the quarter once again. “The spread of earnings has been decent with 66% of our universe either meeting or exceeding profit expectations.” - Motilal Oswal Report

It is expected that any further upside from hereon will depend upon macroeconomic stability (both global & local), and earnings delivery. Management commentaries of various corporates indicate that margin pressure would be likely to continue for another quarter, as the benefits of commodity price alleviation will only be seen in Q4 FY23.


3.

India is nearing the Peak of Interest Rate Hike

Repo rate in India stood at 5.9% till end of Nov, 2022 and market was expecting a last hike of 35 bps which the RBI hiked in the subsequent week of Dec.

IMPACT: NEUTRAL

Remarks: RBI has pro-actively front-loaded the interest rate hikes to manage the inflation and this hike could be the final hike in this cycle. Further hikes will solely depend on upcoming inflation data.

Investment in Debt: We are of the view that this is one of the best times to invest in debt especially with the view to locking funds for long term to get future payouts at higher yield.

Investments in Equity: With regards to the balance sheets of corporates, the majority seem resilient on aggregate levels with low leverage. Few debt-laden corporates will be impacted due to this rate hike. Apart from this, volatility will prevail in short-term and may provide better entry points to deploy lumpsum cash. Since, the general feeler is this is the final hike in this cycle, the markets will react towards other sentimental, geo-political factors along with earnings growth.


4.

US Equity: NASDAQ converging with Dow Jones

After a huge rally in Nasdaq post-covid, it’s converging with Dow Jones on relative basis.

IMPACT: NEGATIVE

Remarks: Global tech giants experienced a huge bull run post-covid despite no visibility on earnings. Only a few top constituents of NASDAQ contributed to the overall earnings. It made the peak on 19-Nov-2021 with an absolute return of 87% from Mar, 2020 while, the Dow Jones moved only 33% in the same period. But, NASDAQ collapsed from this peak by 32% in the next one year (Nov 2021 to Nov 2022) while, the Dow Jones remained flat with a mere 3% correction. As a result, both NASDAQ & Dow Jones converged on relative performance basis with an absolute return of 30% vs 27% respectively.

Dow Jones, which constitutes several sectors, represents the broader economy of the US and hence is more stable unlike the Nasdaq 100 which only constitutes technology sector. The rally in NASDAQ made the tech stocks extremely over-valued and now we can see the mean reversion in its valuation.


5

₹ 1.4 Lakh Crore of GST Collection is the New Normal

GST collection stood at 1.46L Cr in Nov 2022, above 1.4L Cr for the 9th consecutive month.

IMPACT: POSITIVE

Remarks: There is a consensus that higher GST collection is attributed to “higher inflation raising the toplines”. It is partially true, however if you remove the inflation portion, there is still growth in the GST number which shows a real growth in the consumption. The last 4-5 months’ collection is attributed to spike in auto sales which carried a higher ticket size.


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.

There are opportunities in long-term debt, lock the fund for regular inflow.

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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