Health of Your Wealth Oct'23

23 November, 2023 0 Comments


          
            Health of Your Wealth Oct'23

Portfolio Impact Assessment

October '2023

Positive Negative Neutral

PARAMETERS, EVENTS IMPACT REASON
Inflation (CPI - India) Inflation decreased to 5.02% in Sep, 2023 from 6.83% reached in Aug, 2023. However still remains above RBI's upper tolerance level.
Brent Crude Brent crude price decreased by 7.18% In Oct, 2023
Currency USD/INR Rupee depreciated by 0.27 % in Oct, 2023
FII Inflows FIIs were Net-sellers of Indian equities to the tune of Rs.24,548 Cr in Oct, 2023
DII Inflows DIIs poured Rs.25,106 Cr worth of Indian equities in Oct, 2023.
G-Sec Yield Yield slightly increased to 7.35% from 7.21% in Oct, 2023 end.
Global - Inflation US inflation rate remain unchanged in Sept,2023 @ 3.7%
EQUITY MARKETS IMPACT REASON
Valuations-PE It stood at 20.45 times in Oct-2023, -37.76% below Oct, 2021 peak.
Valuations-PB It stood at 3.35 times in Oct-2023, -38.21% below Oct, 2021 peak.
Valuations - Market cap to GDP ratio Current market cap to GDP ratio is at 107%, above its long-term average of 80% and near to the peak valuation of 109% in FY 2022.

High Risk Moderate Risk Low Risk

RISK FOR EQUITIES LEVEL OF RISK
Rising Oil prices & Commodity inflation
Geopolitical tension
FII's being a Net-Seller
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. First Sign of rising unemployment rate in USA

The unemployment rate in the United States increased to 3.9% in October 2023.

IMPACT: NEGATIVE

US unemployment rate hits 21 month high. The unemployment rate in United States increased to 3.9% in October 2023, this marks the highest unemployment rate since Jan 2022, and it is expected to be 4.00% by end of this quarter. The interest rate was increased to 5.50% in October 2023. The change in interest rate started from March-2022 and now it reaches an all-time high in the US. Due to this consistent change in interest rates the US economy is facing a recession. This recession will lead to an increase in the unemployment rate in the US.

An increase in the unemployment rate will lead to lower economic growth and it will affect on the GDP of a country as well as all financial aspects of a country.

chart november

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2. FDI into China turns negative for the first time.

FDI moves from $100 billion to negative in China.

IMPACT: POSITIVE

Foreign investments in China have turned negative for the first time since 1998, highlighting how foreign companies are pulling money out of the country due to geopolitical tensions, regulatory concerns, and higher interest rates elsewhere. China's direct investment liabilities in its balance of payments declined by $11.8 billion in the third quarter. This decline in FDI by the balance of payments measure reflects less willingness by foreign companies to re-invest profits made in China in the country. That's due to discordance with other countries and the rising attractiveness of keeping cash overseas. Advanced economies have been raising interest rates while China has been cutting them to stimulate the economy.

This will expect that positive impact on Indian economy. India is one of the fastest growing economies in the world next to China, due to this there is a chance of FDI flow into India will increases. This leads to overall growth of Indian economy in future days.

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3. Expected portfolio rebalancing from equity to debt (especially in USA)

For the first time in this century, cash pays a higher yield in interest than the S&P 500 does in earnings.

IMPACT: NEGATIVE

The S&P 500 touched near five-month lows as the yield on the U.S. 6-month Treasury bill yield hits approximate to 6% mark, while investors awaited earnings from the world's largest technology companies and key economic data. The yield on the 6-months note touched the 2007 milestone. The S&P 500 slipped below 4,200 points, a technical level that markets believe could trigger further losses towards the 4,000 level.

The risk-free securities will be delivering higher yields than the equities. For the first time in the century, the earnings yield of S & P 500 is lower than the bond yield in US hence there is an expectation that the money will move from equity to debt. From this the investor will earn a higher return with lower risk.

At present the 6-month Treasury bill yield is at all-time high, the market is expecting that there may be a fall in the interest rate of treasury bills in the future days with its cyclical in nature so this the correct time to invest in the treasury bills which gives maximum returns with no risk.

 

4. Earnings review of Nifty 50 Companies in Q2Fy24

The Q2FY24 earnings of Nifty 50 companies have been in line with expectations, with domestic cyclicals growth.

IMPACT: NEGATIVE

Number of Companines Sales Ebdita PBT PAT
Above 2 11 10 12
Inline 31 20 20 19
Below 3 5 6 5
Nifty Universe 36 36 36 36

The July-September quarter (Q2) earnings of Nifty 50 companies have been broadly in line with expectations so far with domestic cyclicals. As of November 1, 36 Nifty 50 companies have announced their Q2FY24 results. These companies constitute 75% of the estimated PAT for the Nifty Universe, 49% of India's market capitalisation, and 85% of weightage in the Nifty.

The earnings of the 36 Nifty companies that have declared results so far jumped 35% YoY v/s the estimates of 31% YoY, propelled by BPCL, HDFC Bank, JSW Steel, Reliance Industries, and ICICI Bank. These five companies contributed 73% to the incremental YoY accretion in earnings. Conversely, Tata Steel, UPL, and Tech Mahindra contributed adversely to Nifty earnings. Only five companies within Nifty reported profits below the expectations, while 12 recorded a beat and 19 registered in-line results so far.

Among the Nifty constituents, HDFC Bank, ICICI Bank, Maruti Suzuki, JSW Steel, Bajaj Auto, Dr Reddy’s Labs, Ultratech Cement, Cipla, Hero MotoCorp, Tech Mahindra, and Tata Steel exceeded profit estimates. Conversely, UPL, Wipro, and SBI Life Insurance missed profit estimates for the quarter.

Top FY24 upgrades are Maruti Suzuki, JSW Steel, Cipla, Dr Reddy’s Lab, and BPCL. Top FY24 downgrades are UPL, Bharti Airtel, Wipro, HUL and Asian Paints.

These results show the positive impact in Indian economy in the 2nd quarter of financial year 2024.

5. Triggers for Gold’s expected future Performance

Gold prices are expected to move up in the coming days, time to invest in Gold.

IMPACT: POSITIVE

Following factors hint a rise in gold prices in the coming days.

  • Falling gold production
  • Lack of new gold discoveries.
  • Central banks accumulating gold
  • Government debt at historical highs
  • Unsustainability of high fiscal deficits
  • Gold-to-S&P 500 near all-time low.
  • G-7 Economies entering a manufacturing revitalization era.
  • Rising deglobalisation trends.
  • The onset of an inflationary regime.
  • 60/40s Looking for haven alternatives.
  • Ultra capital conservatism by major miners.
  • A trifecta of Macro Imbalances
    1. Debt problem of 1940s.
    2. Inflationary issues of the 1970s.
    3. Asset valuation imbalances of the 1920s and 1990s.

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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.

Consider creating cash from mid & small cap equity for short-term requirements.



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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