Tuesday, 7 March 2023

Financial Markets @ March 2023

 

Dear Patron,

Presently market is treading between inflation and growth. Inflation in India is well within the RBI predictions and which is managed effectively. Hence we would most likely not see runaway of interest rate cycle.

However with Europe showing no sign of recovery till date and with America poised to hike interest rate, certainly global investment scenario is looking gloomy.

Back home, Ex Bankers and Economist are confident about India growth story. They have reason to believe the same. Banking segment is more efficient today to manage even at lesser margin  

Demand for Agriculture, manufacturing and agriculture is strong. Digital India presents tremendous opportunity for growth. Top 500 Corporate hardly need any debt, which bodes well. The BSE Sensex PE at 23.20 gives good opportunity to rebuild your Portfolio. The all time high PE was at 36.210 in Feb 2021. Market saw V shape recovery only because the fundamentals of the economy were strong.

Participation in equity through mutual funds will be the great idea with long term in mind. Systematic Investment Plan as always is the best disciplined way of participation in same.

 

Happy Investing

Sunday, 8 January 2023

Financial Markets @ January 2023

 

We saw fall in S&P BSE Sensex by 4.35% month on month basis. Midcaps & Small Caps indices were also down around 4%. Same trend was observed in international market too, lead  by Nasdaq Composite Index falling by 8.6%, Hang Seng 7.98% & Nikkei 225 (Japan) 6.86%.

Global Growth slowdown, especially in US & Europe, is expected in 2023 with rates remaining on higher side. India is in transition phase and relatively better placed with more domestic demand driven and, political stability with a progressive reform agenda.

 According to the National Statistical Office (NSO) data, India’s preliminary GDP growth is expected to grow at 7% in fiscal 2023 from an 8.7% in the previous year. Still very much in a zone to

This New Year could be safely termed in Indian market context as stepping stone year, from long term perspective. We have seen Price Earning valuation adjusting amicably vis - vis earnings, making market more transparent. There is possibility of further adjustments in market valuations with the advance tax season approaching and liquidity might be a slight concern. No major downside risk seen to earnings growth in the near Term as domestic demand is resilient

 Present Interest rates Scenario:

1 Year Benchmark G-Sec prevailing rates @ 7.68. 5 Year Benchmark G-Sec prevailing rates @ 6.79 (yields given in semi-annualized).10 Year Benchmark G-Sec prevailing rates @ 7.26

Yes there is a inflationary pressure on interest rate & Liquidity which can be observed with above yields trend.

Happy Investing

Tuesday, 27 September 2022

Financial Market @ September 2022

 

Corporate earnings in Q1FY23 came below expectations. On one side Bank led the earnings growth trend buoyed by credit cost moderation and loan growth momentum. On the other side sectors like, Oil & Gas, metals, healthcare, cement led to reduction in EPS estimates. Technology & Real estate too shown decline in YOY earnings.

Globally, pandemic and geopolitical conflicts have sparked inflationary conditions through excess stimulus and commodity price shocks. It has in turn warranted higher rate regime. Fears of Global recession (decrease in oil demand by European countries) and covid lockdown in China are impacting demand are keeping energy prices in check.

Equity Outlook:

So far so good. Domestic macroeconomics strength is reflected in a way Indian equities have substantially outperforming the emerging markets and has shown relatively better resilience to global market shocks. The country weight for India has inched from 6% in 2020 to 14.50% by August 2022.

Investor should participate in staggered manner or systematically for the long term.

Debt outlook:

Establishing price stability is taking precedence over short term growth in order to achieve long term goal. The monetary policy measures will be aimed at anchoring inflation expectations. We expect terminal rate to be lower at 6% to 6.25% by end of FY23.

Domestic growth is expected to hold up in the months to come. Broad domestic Market movement is expected to be range bound between 21 PE to 25 PE until inflationary pressure is there in economy…

Happy Investing

(Inputs from Franklin Templeton has been given weightage in reading global economy including India) 

Sunday, 17 April 2022

Financial Market @ April 2022

 

Equity Market:

RBI has trimmed the real GDP growth forecast for FY23 to 7.20% from 7.80% estimated earlier.

Continuation of the geopolitical conflict causing supply chain disruption and high global commodity prices for longer may weigh on the fiscal situation, trade deficit and currency weakness.

High oil prices may place a drag on the cyclical recovery for Indian economy.

On the positive side, various domestic macro factors such as tax revenue growth, improvement in consumption and industrial high frequency indicators, e.t.c. remain supportive of the economic growth.

Markets are on expected lines, searching for support levels. World is waiting for the war to end, so as India. With the ease in energy prices new opportunities will be driving the markets.

SIP / STP are the valuable tools to participate in the market rather sitting on sidelines…

Debt Market:

RBI has raised inflation forecast for FY23 to 5.70% from 4.50%, due to broad based jump into global energy, commodities and food prices.

The RBI intends to reduce the liquidity in gradual and calibrated fashion over multi-year time frame.

We can see 3 to 4 rate hike in this financial year by the Central Bank.

Given the expected rate hikes, gradual reduction of liquidity and substantial supply of Govt. securities, yields are expected to harden further in future.

As it is, stay invested in shorted end of the yield is always a defensive approach and we are maintaining the same going forward suggesting Floating rate funds for conservative outlook.

Happy Investing!

(Blog has inputs from Franklin Templeton)

 

 

Thursday, 3 February 2022

Budget 2022 - Disseminated

 

The attempt to lift the economy from vagaries of the pandemic-led slowdown, the Union Budget for FY- 2022-23 focused on right kind of spending of its scant resources on the physical and digital infrastructure, to keep up the recovery momentum intact. The Budget is encircled around three key themes - Infrastructure, Digital and Manufacturing.

 A few key highlights are enumerated below for your kind reference with our perspectives on the Union Budget which also includes our Equity and Fixed Income market outlook

 1. Nominal GDP growth estimated at 11% for FY23.

2. Fiscal deficit estimate pegged at 6.9% of GDP for FY-22 and 6.4% for FY23.

3. Net market borrowing of government bonds for FY-23 estimated at INR 11.59 Lakh Cr vs INR 8.76 Lakh Cr in FY22.

4. Disinvestment receipts for FY23 pegged at INR 65,000 Cr, vs INR 78,000 Cr for FY-22.

5. No change in Direct Tax; Income from transfer of virtual assets (like crypto currencies) to be taxed at 30%.

6. Cap on surcharge on long term capital gains arising on transfer of any type of assets at 15%.

7. National Tele Mental Health Program to be launched for quality counseling.

8. Proposed issuance of sovereign green bonds as part of government’s borrowing program in FY23.

9. Digital Rupee, using block chain technologies to be issued by the RBI starting 2022-23.

10. 100% of post offices to go digital and will come on the core banking system.

 Equity Market Outlook - The tight-rope fiscal walking could have been augmented with steps to drive growth through higher private spending and capex. What the budget delivers in terms of being fiscally pragmatic and being non-inflationary, it falls short on efforts to stimulate aggregate demand. The PE valuations of stocks are expected to get corrected with the fourth quarter result. Sensex may be on lean pitch, considering the advance tax season which results in liquidity crunch, creating good opportunity to participate for long term objectives.

 Fixed Income Outlook - Bond yields may continue to inch higher in the backdrop of increasing crude oil price, higher inflation, geopolitical tension, higher supply of government bonds, and an exit from the prevailing loose monetary policy globally. Market will closely watch the upcoming RBI monetary policy. Shorter duration funds are the order of the day.

(Note: Valuable inputs have been taken from Franklin Templeton & HDFC Mutual Fund reports on Budget)

 

Sunday, 18 July 2021

Financial markets @ July 2021

 

The Economy Scenario and equity debt markets behavior going forward …

We all will appreciate that economies world over are supporting their respective debt market in these unprecedented times and many including America are printing currencies. Thankfully India is not printing money but has ways out to manage and support economy through wide variety of innovative financing measures available to raise money for projects and also monetization. MOU’s open market operation is one of these.

Most countries like India are also facing inflationary pressure (which is actually due to short supply & not demand push inflation hence unproductive) which is expected to ease going forward. Higher crude prices, is one of the reasons for inflation. However, OPEC has recently announced to increase crude oil production (which they had reduced with the start of pandemic to maintain the oil prices even in the low demand scenario) and reduce the prices by 4$ per barrel. This will certainly ease out some pressure on the Central Bank while having check on interest rates.

Going forward, lower interest rates scenario looks imminent or in other words soft considering the Govt. scope of even stretching itself in terms of fiscal deficit (which is 6.80% as defined in budget) and as rightly being suggested by prominent economist including Mr. K.V. Kamath (veteran Banker). Mr. Kamath is also of the opinion that benign interest rates of 8%  and abundant liquidity were also necessary to seize what he called as a 25 year growth runaway opportunity awaiting the country.

Considering the outcome of above scenario, interest rates will be on lower side and funds will be easily available making private player interested in projects and its executions. On the other side being lesser interest offered on the Bank Fixed deposits and availability of ample liquidity will help in sustaining the equity momentum for at least six to eight months.

Sunday, 28 February 2021

An assessment about Indian economy pre and post COVID times…

Last year was unfortunate year especially low income group people were in deep pain worldwide.

Ø  Pain to the economy and market was also there but temporary in nature. The economy recovered pretty strong due to: (a) Lower interest rate (b) higher fiscal deficit (c) Govt. stimulus and (d) pent up demand (purchase which was on hold for 6 t0 9 month).

Ø  Outlook for Indian economy has improved significantly over a period of time with third quarter GDP reporting at .4% (positive territory –a big gain)

Ø  The Fuel consumptions, power demand and GST collections all have gone up in last one year; hence we can say that Outlook for our economy is better now than before Covid times.

Ø  Long term structural drivers of favorable demographic low penetration of consumer goods and vast unmet needs of infra were there and are there to help economy for longer time.

Ø  What India needs most from abroad is long term capital and cost is low as never before, a big positive.

Ø  Likely shift in global manufacturing from China to India - as global players are going at least for china plus one country because of Covid… (Disruption in supply chain and increase in wages in china).Trade war between US and china also worked multinationals to think beyond China.

Ø  Big advantage is size of India … if we use that for encouraging multinational… to set up manufacturing units it will be in their benefits…India has scaled up in ease of doing business from 140 to 60 this year to further pitch itself for destination next for multinationals.

Ø  India has reduced dependence on import from china due to stand off … and atmanirbhar in making and pushing and creating space for in house manufacturing base.

Ø  PIL scheme Production linked Incentive schemes has been initiated by Govt. to Manufacturers

Ø  India is leader in export of services …in world and now shift in its focus to manufacturing has improved the GDP outlook in Toto.

Ø  In response to covid interest rates dropped sharply and real estate prices also falls significantly

Ø  Developed economies are running into High fiscal deficit …And emerging economies is net exporter the potential of further exports to developed economies will be more fruitful…

Ø  Year 2020 has been Year of reform, land & labour and also remarkable budget as defined in following points:

Ø  Strong focus on Atmanirbhar manufacturing

Ø  Reduction in Defence imports to production almost 101 items.

Ø  Biggest highlight of the budget was privatizations, a very bold step. It will significantly defines good implication of finances for the govt. Govt. will have presences only in four strategic sectors and shall be diluting stake in all other sectors…It will good for all stakeholder…And good for Govt. financials

Ø  A very strong message govt. has given in budget that as it cares for poor it also respects the wealth creators.

Ø  Another good thing about the budget is Continuity in taxation… no change in tax rates which is good developments for savers as well as business stakeholders…

Ø  Good positive budget and the reaction to same have seen in capital market. As economy recovered market has also recovered

Ø  One key take away… market reversal. Investments made in difficult times yields better returns

Ø  Equity investments – It is Simple assets class …but not an easy asset class. When in pain the market are low but investment is not easy as the headlines are scary…

Concern of many - Disconnect between economy and market

1-      Market forward looking… economy was in pain last year but market was looking for next one two or three year. Next year GDP growth looks like delivering double digit growth.

2-      Equities – fare value of share is the discounted value of future cash flow

3-      Let assume for one year there is no profit… we must understand fare value of business still  is at 5%

4-      The cost of capital has come down sharply both external & internal

5-      In these period smaller business can’t reach out to customer… larger business has gain market share and capital market valuation goes by larger business

6-      Profit growth surprised all… cost went down challenge was supply, the profit margin enhanced to great extent.

Where are we today and going forward

·       At current year, market levels … last 10 / 15 yr return is 11%...

·       Before we went into covid we were having moderate returns for same period

·       GDP of India on long term basis  …will be on advantageous position due to low cost of capital

·       Pe multiple very high but at fiscal 2023 the PE is at 18… which is reasonable keeping low cost of the capital

·       Banks were not making money. Earning recoveries which was missing for so many years is taking place… Largest bank in country were not reporting right picture. Profit outlook has increased due low cost of acquisition and possibly higher spread in lending in year to follow.

·       Credit growth next yr to be in double digit… faster credit growth … rising interest rate is positive for bank. Along with lower provisioning cost banks looks strong

·       IT sector – has been accelerated.. And to credit of Indian IT sector people working from home lower cost… yet delivering services on time ..Outlook for growth looks decent.

Current year is about

ü  Outlook for Capex sector - infra structure looks good… lower interest rate PIL schemes

ü  Utilities and FMCG are study business

ü  Commodities prices have gone up sharply only automobile sector margin has come down from high to normal

ü  Telecom pricing has not improved… customer moving from 2g to 4g spectrum improving their top line

ü  Outlook for profit growth looks good in this year that’s why market looks good.

ü  Not much divergence, cap wise, small mid or large, growth in all segments is seen this year and expected same down the line.