Market Update – January 2023

NIFTY50, after hitting all-time highs during the early part of December, reacted as investors chose to book some year-end profits. NIFTY50 ended the month negative 3.5% while broader markets performed marginally better with S&P BSE Midcap and S&P BSE 250 SmallCap down 2.5% & 2.1% respectively. Globally, all markets ended weak as rising Covid infection and its impact on the global economy along with demand impact owing to high inflation worried investors. China’s reopening of the borders after three years was a positive trigger for the Hong Kong markets to rebound sharply.

A recap of dramatic 2022:
The year started on a negative note as Russian invasion of Ukraine constrained supply chains of multiple commodities resulting in a sharp surge in their prices, which added to inflationary pressures. This unexpected spike in inflation forced central banks across the world to be aggressive in their interest rate hikes and this led to a risk-off in markets globally. The resurgence of Covid cases in China and other parts of the world towards the end of year brought back worries of an economic slowdown. CY22 would go down in history as one of the few years where global investors had negative returns in both equity and debt markets in addition to heightened volatility in the currency markets.

Market Outlook:
Post a strong two-year rally from covid lows, markets have taken a breather in CY22, posting a modest ~4% returns. However, if we look around, India is amongst the top performing markets globally. The year started with record high FII outflows. However, FII’s turned net buyers again since August, a function of a relatively resilient Indian economy that grew at 6.3% in a year where the world was staring at recession. Domestic flows into the equity markets remained very buoyant in 2022 and the trend is expected to continue.

India continues to be amongst fastest growing large economies globally and has come out as very resilient amidst the global turmoil. Going ahead too we are in a sweet spot as the growth rates are expected to accelerate. Unlike our past dependence on only consumption, economy today has more pillars of growth. The 4Ds are supporting the India Story – Democracy (Pragmatic government policies, government spending), Demographics (Rising working age population, rich product propositions), Domestic consumption (Outlook on both rural and urban is strong) and Digitisation (amongst the best in the world).

We believe that quite a few headwinds in 2022 will ebb and in fact become tailwinds. These would include inflation coming off sharply, possible end of interest rate cycle, global economies coming back to stability and growth, China opening-up aiding global growth and hopefully some solution on the Russia-Ukraine issue. Indian equity markets have seen 2022 as a year of consolidation. Our view is that 2023 will be an interesting year with possibility of double digit returns though accompanied with volatility. The importance of investing in companies with profits, visible growth in profits and in a value conscious manner was the highlight of investing in 2022. We expect this to be only reinforced in the coming year.

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Market Update – December 2022

The recent positive trend in Indian equity markets continued during the month of November. NIFTY50 ended the month up 4.1% at near all-time highs, while broader markets slightly underperformed with S&P BSE Midcap and S&P BSE 250 SmallCap up 2.3% & 3.1% respectively. Global markets staged a sharp comeback and rallied sharply during the month, driven by lower-than-expected US CPI inflation that fuelled hopes that the Federal Reserve could tone down its aggressive pace of interest rate hikes. Dovish remarks in the US Federal Reserve meeting minutes and falling crude/commodity prices also helped. Flows were strong with FPI’s buying ~USD 4.2 bn of Indian equities while DIIs flows were marginally negative at ~USD 0.7 bn.

Going into year end, Global markets have broadly stabilised with foreign flows returning in India. We expect relative strength of markets to continue. Baring near term volatility owing to global events, we feel medium to long-term outlook is quite positive for India. Over the coming 6 months inflation globally will ease and this too bodes well for equity markets. Weak crude prices should also be positive for the Indian economy and also lead to stability in Indian Rupee.

The headline indices are at all-time highs, with valuations being reasonably priced. However, broader markets to some extent, have underperformed. We expect that over the course of next few months, with stability in terms of news-flow, investor interest should return to this segment as well. There is some over exuberance being witnessed in pockets of the market, with short term sharp movements being witnessed, driven by retail investor activity. We would advise staying away from story-based investing and would continue to focus on companies with existing profits, visible profit growth and where fundamentals justify the valuations.

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Market Update – November 2022

Indian equities ended the month of October with decent gains, along with the rebound witnessed in global equity markets. US Dow Jones Index gained a whopping 14% in October, while the gains in tech-heavy Nasdaq was down 2.1%. NIFTY50 was up 5.4% for the month, thereby turning positive for YTD’CY22. The broader markets ended marginally positive with S&P BSE Midcap and S&P BSE 250 SmallCap being up 2.0% & 1.8% respectively. The rally was seen across the sectors led by the rate sensitive sectors like Banks, PSU’s and Autos. Almost all sectoral indices closed higher than the previous month. FIIs turned net buyers in last 15 days of the month. Strong domestic inflows continued with domestic institutions buying ~USD 1.1 bn in the month of October.

Indian economy and markets have shown remarkable resilience and “de-coupling” in this global uncertainty. Indian economy continues to do well and is expected to grow 6.5% to 7% for the next two years. Corporate profitability also is trending well and earnings are expected to grow in mid-teens for the next two years. Domestic demand is trending up well, with the onset of the festive and wedding season and should provide an additional tailwind for consumer and economy facing companies. Global markets and scenario also seems to be stabilising. There is also an increasing realisation that emerging market funds might not be the best way of participating in the growth of Indian economy and we are seeing early signs of smart India country specific allocations coming in. This is reflected with positive foreign flows being witnessed regularly, lending additional strength to Indian equities.

However, volatility should be expected regularly as the world still is grappling with multiple macro-economic issues as well as geo-political concerns. A balanced approach in investing is highly recommended, with focus on profit growth and valuations.

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