Positive Negative Neutral
|Inflation (CPI - India)||Inflation slightly increased at 7% in Aug, 2022 from 6.71% reached in Jul, 2022. Remains above RBI's upper tolerance level of 6%.|
|Brent Crude||Brent crude prices corrected by -9% In Sep, 2022; trading below $90.|
|Currency USD/INR||INR depreciated by 2.5% in Sep, 2022|
|FII Inflows||FIIs were Net-Sellers of Indian equities to the tune of Rs.7,624 Cr in Sep, 2022, attributed to the rate hike by US FED.|
|DII Inflows||DIIs poured Rs.14,119 Cr into Indian equities in Sep, 2022|
|G-Sec Yield||Yield increased to 7.34% from 7.18% in Sep, 2022 end.|
|Global - Inflation||US inflation has slightly cooled off at 8.3% in Aug 2022 from 8.5% in Jul,2022.|
|Valuations-PE||It stood at 20.64 times in Sep 2022, 26.73% off from peak of the market in Oct, 2021.|
|Valuations-PB||It stood at 4.02 times in Sep 2022, 13.17% off from peak of the market in Oct, 2021.|
High Risk Moderate Risk Low Risk
|RISK FOR EQUITIES||LEVEL OF RISK|
|US FED - Tightening|
|US FED - Interest rate hike|
|RBI-Sucking out liquidity|
EVENTS, NATURE OF IMPACT & ANALYSIS
India’s Growth Continues to Diverge from Global Growth
The Indian economy has become an Oasis in the Desert. It continues to show signs of stability even as other world economies slow down.
Remarks: In the post-COVID scenario, India has emerged as the fastest growing economy in the world. Despite a major slowdown across the world, multiple tailwinds like China+1, Atma Nirbhar Bhaarat, Make in India, PLI Schemes etc have catalysed economic growth.
Capex expansion and higher credit growth shows optimism for business activities in the next decade. McKinsey’s CEO Bob Sternfels quoted “It’s not India’s decade, It’s India’s century”.
India… A Fast-Growing Economy with lower Leverage than the World
The dynamics of Indian economy have been an outlier from other economies in the post-covid scenario.
Remarks: Economies can grow at a faster pace with the help of higher leverage. However, leverage comes with risk. Indian corporates, on the other hand, have been deleveraging their balance sheets. As the data shows, credit to non-financial sector has grown from 2008 to 2021 across the globe be it advanced economies or emerging markets. EXCEPT in INDIA. A lower leverage in the balance sheet reduces the burden of debt obligation resulting in a positive impact in the profitability & cashflow of a company.
INR standing relatively strong against USD
INR has depreciated 2.5% MoM while 9.5% YTD against USD whereas other major currencies like Euro, UK Pound, Japanese Yen, Chinese Yuan, South Korean Won have depreciated as high as 12% - 26% YTD.
Remarks: Currencies across the globe are depressing against US Dollar amid the aggressive rate hike by US FED. However, Indian Rupee is standing comparatively strong as compared to other currencies. Multiple factors attribute to this performance of INR
Noise of High Inflation will be a Thing of Past!
Inflation in the US stood 8.3% in Aug 2022 a slowdown from the 8.5% in July and the 40-year high of 9.1% in June.
Remarks: High inflation is expected to cool-off in the next 6-12 months. Inflation data is delayed, and we only know the result historically (lag indicators). This apart, inflation is always tracked on a YoY basis. In the last 5-6 months, the Consumer Price Index has gone up drastically, making a higher base.
For the inflation to stay up, the index must go up further from here, in the next 6-12 months, which is unlikely to happen. Hence the inflation will show a cool-off. Mathematically, it means, even if the CPI remains at the same level for the next 6-12 months, the inflation rate will show a cool-off due to the higher base from the past 5-6 months.
Further, the key Inflation drivers (lead indicators), being tracked daily show a downward trend already (especially oil & industrial commodities) which will contribute to the inflation coming down.
Indian Equity is Fairly Valued
Nifty 50 is trading at 21 times Price to earning basis whereas 4 times Price to Book basis.
Remarks: If we look at the traditional valuation matrices, Nifty 50 is trading below the 5-year and 10-year average PE whereas, on price to book (PB) basis, it’s trading slightly above its 5-year and 10-year average. The India Market cap to GDP ratio is currently at 95% - higher than the average of 80%. The US is trading at 150% of its GDP, corrected from a peak of 220% - US market is still overvalued compared to India.
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.