PERSONALISED INVESTMENT MANAGERS

Health of your Wealth Oct '21

18 November, 2021


          
            Health of your Wealth Oct '21

Did your wealth have a few set-backs or a few nudges on its health front this October. What are the events or risks that nudge it higher or set it back? And how does it impact your wealth going forward. We have put together some systematic risks that we believe would impact the market.

"There is no such thing as a worry-free investment. The trick is to separate the valid worries from the idle worries, and then check the worries against the facts." - Peter Lynch

Portfolio Impact Assessment

OCTOBER 2021

Positive Negative Neutral

PARAMETERS, EVENTS IMPACT REASON
Inflation (CPI - India) It was lower in Sep. 2021 V/s Aug. 2021
Inflation - Food Better Kharif Crop
Inflation - Fuel Crude Prices up by 9.1% in Oct, 2021
Currency INR USD INR depreciatied by 1% due to FII outflows, higher oil prices
FII Inflows FIIs were net-sellers with 13550 Cr
DII Inflows DIIs poured 4411 Cr into Indian equities
G-Sec Yield Yield moved up from 6.223% to 6.388% in Oct. 2021 end
RBI Actions - Interest Rate Continued the status-quo
RBI Actions - Liquidity RBI intends to reduce the liquidity in the system in a calibrated manner through various actions
Tax Collection Higher direct tax & GST collection which leads to less borrowing from market
Global - Inflation Higher commodity prices due to supply glut
US FED - Tapering It is more certain now
US FED - Interest Rate Hike It will start from mid of year 2022

EQUITY MARKETS IMPACT REASON
Q2FY22 Earnings Session Earnings are marginally higher than estimates
Valuations-PE It is historical peak levels
Valuations-PB It is historical peak levels
Valuations-Marketcap to GDP Ratio It is historical peak levels

High Risk Moderate Risk

RISK FOR EQUITIES LEVEL OF RISK
US FED-Interest Rate Hike
Current Valuations
US FED-Tapering
Commodity Price Inflation
RBI-Sucking out Liquidity



Detailed Impact Analysis of Key Events

EVENTS, NATURE OF IMPACT & TAKEAWAYS

1.

FED Tapers i.e US FED reduces the fresh liquidity injection by $15 billion every month. Fresh liquidity injection is expected to completely stop by mid of 2022.

IMPACT: NEGATIVE

Remarks: Reduction in fresh liquidity is expected to minimize the fund flows towards various risky assets i.e Equity, Cryptos etc. Hence, rerating in equity due to higher liquidity will take place and equities will henceforth follow the earnings growth. However, it should be noted that current action from the FED is only reduction of fresh liquidity. They will not withdraw / tighten the already available liquidity in the system & will therefore reduce market volatility to certain extent.


2.

Net Direct Tax Collections grew over 74% to ₹5.70 Lakh Cr so far this fiscal & GST Collection stood at ₹1.30 lakh Cr in Oct, 2021

IMPACT: POSITIVE

Remarks: Higher tax collections enabled the Government to stick to the original borrowing plan. There was no need to tap the bond market to fund the growth. Higher tax collection will limit the supply of G-Secs to the bond market and it will keep the yields at reasonable levels. This is a positive for Bond markets.


3.

Exports rise over 42% to $35.5 billion in Oct, 2021

IMPACT: POSITIVE

Remarks: India is expected to do exports of $400 billion in FY22 & has set a target for $500 billion in FY23. This is a big positive for the economy. It will enhance the forex reserves and create huge local employment. Currently, 60% of India’s exports are from engineering goods, gems, jewelry, pharmaceuticals, petroleum and chemicals.


4.

RBI has announced the gradual withdrawal of liquidity from the system through variable reverse repo route, discontinued operation twist (OT).

IMPACT: NEUTRAL

Remarks: RBI’s action indicate the strength of underlying economy. The economy does not need excess liquidity. However, RBI kept the rates unchanged and maintained an accommodative stance. They have provided more time for the economy to stabilize. RBI Governor indicated 'Sudden removal of stimulus measures will do more harm.'


5.

FIIs were net-sellers in Indian equities during Oct 2021 and they have sold to the tune of ₹13550 Cr in Indian equities & sold ₹1550 Cr of Indian debt.

IMPACT: NEUTRAL

Remarks: Despite, FIIs being net-sellers in Oct, 2021, FIIs have poured $28.5 billion in the past year into India (highest among all emerging markets). FII selling has been absorbed by both DIIs as well as retail investors. Despite the ₹13,550 Cr withdrawal by FIIs, the broader indices were 0.9% up in Oct, 2021.

Detailed Impact Analysis of Key Events

EVENTS, NATURE OF IMPACT & TAKEAWAYS

1.

FED Tapers i.e US FED reduces the fresh liquidity injection by $15 billion every month. Fresh liquidity injection is expected to completely stop by mid of 2022.

IMPACT: NEGATIVE

Remarks: Reduction in fresh liquidity is expected to minimize the fund flows towards various risky assets i.e Equity, Cryptos etc. Hence, rerating in equity due to higher liquidity will take place and equities will henceforth follow the earnings growth. However, it should be noted that current action from the FED is only reduction of fresh liquidity. They will not withdraw / tighten the already available liquidity in the system & will therefore reduce market volatility to certain extent.


2.

Net Direct Tax Collections grew over 74% to ₹5.70 Lakh Cr so far this fiscal & GST Collection stood at ₹1.30 lakh Cr in Oct, 2021

IMPACT: POSITIVE

Remarks: Higher tax collections enabled the Government to stick to the original borrowing plan. There was no need to tap the bond market to fund the growth. Higher tax collection will limit the supply of G-Secs to the bond market and it will keep the yields at reasonable levels. This is a positive for Bond markets.


3.

Exports rise over 42% to $35.5 billion in Oct, 2021

IMPACT: POSITIVE

Remarks: India is expected to do exports of $400 billion in FY22 & has set a target for $500 billion in FY23. This is a big positive for the economy. It will enhance the forex reserves and create huge local employment. Currently, 60% of India’s exports are from engineering goods, gems, jewelry, pharmaceuticals, petroleum and chemicals.


4.

RBI has announced the gradual withdrawal of liquidity from the system through variable reverse repo route, discontinued operation twist (OT).

IMPACT: NEUTRAL

Remarks: RBI’s action indicate the strength of underlying economy. The economy does not need excess liquidity. However, RBI kept the rates unchanged and maintained an accommodative stance. They have provided more time for the economy to stabilize. RBI Governor indicated 'Sudden removal of stimulus measures will do more harm.'


5.

FIIs were net-sellers in Indian equities during Oct 2021 and they have sold to the tune of ₹13550 Cr in Indian equities & sold ₹1550 Cr of Indian debt.

IMPACT: NEUTRAL

Remarks: Despite, FIIs being net-sellers in Oct, 2021, FIIs have poured $28.5 billion in the past year into India (highest among all emerging markets). FII selling has been absorbed by both DIIs as well as retail investors. Despite the ₹13,550 Cr withdrawal by FIIs, the broader indices were 0.9% up in Oct, 2021.


ACTIONS FOR ALPHA RETURNS

What you should do. And should not.

Remain invested in equity for the long term BUT a 20%, correction is possible at anytime

Continue your SIPs and STPs, dont try to time the markets BUT you may get NO returns over 1 to 3 year period

Create Cash NOW if you need money in the short term

ADD money on market dips if you are a Long Term Investor


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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