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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Market Update – October 2022

We are going through a cycle of heightened global news flow, events and uncertainty. Financial conditions have tightened following aggressive monetary policy action across the world to combat surge in inflation. This has caused higher volatility in financial markets and USD has strengthened to a two-decade high. Central banks and governments are grappling with the rapidly changing economic outlook and this was reflected in United Kingdom where currency plunged upon government move to cut taxes and within days they were forced to rethink on their strategy. At the same time, we believe that Central banks all over the world, will have to loosen their tough and aggressive rate hike plans to ease this upheaval in financial markets.

The Indian economy and to some extent, financial markets have come out relatively unscathed so far. The INR has been amongst the best performing currencies vs the USD. Domestic demand remains stable with accelerated credit growth at 16.2% YoY. Seasonally adjusted manufacturing capacity utilization reached the highest level in three years, standing at 74.3% in Q2FY23. Outlook for Rabi season also augurs well with reservoir levels at 87% of full capacity vs a 10-year average of 77%. The central bank data trends suggest stronger domestic demand from robust credit growth, capacity utilization, winter harvest prospects and capital goods demand. However, downward risks to exports are possible, due to headwinds from geopolitical tensions, tightening global financial conditions and slowing external demand restrict GDP outlook.

From a global investor perspective, Indian equities are coming back in focus, given the resilient economy and currency. A view of moving away from EM funds and China funds into India specific funds is also slowly gaining pace. This flow should act as an added strength for Indian equities. However, we have to be conscious of the global events and news flow and avoid chasing momentum. In the near term, as we enter the earnings season, we expect stock specific volatility as many companies/sectors will witness margin compression owing to high input prices. At the same time, if festive demand is good then markets may like to ignore near-term noise and just focus on the positives. We would prefer to be in the latter camp.

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Market Update – September 2022

The strength in markets continued in August with markets reporting a second consecutive month of positive returns. Volatility was high as global markets corrected sharply towards the end of the month, led by renewed fears of sharp interest rate hikes and resultant spike in US 10-year Gsec yields. Dollar Index also hit a new high, triggering another bout of risk-off globally. Amidst all this, Indian equities outperformed major global markets. NIFTY50 ended up 3.5% for the month, while S&P BSE Mid-cap and S&P BSE Small-cap 250 indices outperformed large-cap indices. Except IT sector, all the other sectorial indices closed in green with S&P BSE Power, Capital Goods and Consumer Durables indices gained sharply around 15%, 8% and 8% respectively.

Indian equities have shown remarkable resilience over the last couple of months. This is particularly noteworthy given the continued volatility in global markets. On the economy front, India has stood out with outlook for GDP growth continuing to be over 7% for FY23 in a world where economies are struggling to avert recession. The added opportunities for Indian manufacturing on the back of China+1 move as also increasing competitiveness of Indian companies because of high power costs elsewhere in the world, is adding to the optimism. Domestic demand outlook is very strong led by increasing spending in the ensuing festival and wedding season – the first normal one in three years post Covid related shutdowns. Both rural India – led by record agricultural produce and high agri product prices, and urban India – led by income level increases particularly in the IT services and financial sector; is seeing increased activity and that gives confidence of a strong economic outlook. From a global investor perspective, Indian equities are coming back in focus, given the resilient economy and currency.

Although Indian markets looked relatively better, this very sharp outperformance in the global context has surprised lot of market participants. While we continue to believe that Indian equities will do much better than most global markets, in the absolute near-term select euphoria is being witnessed in the markets. The recent moves have been more allocation related and also momentum based. News flows globally will continue to lead to high volatility and patience and careful discretion should be the strategy going forward.

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