Global Macro & Markets
Russian-Ukraine conflict led to a massive spike in commodity prices on supply side disruption worries. Though nominal yields have been sprinting upwards, inflation-led lower real yields led investors to favor equities as an asset class. Despite war worries, MSCI Word index rose 4.2% m-o-m on the back of S&P500 (+5.2%), Euro-50 (+3.6%) and NIKKEI (+3.6%). MSCI EM index (-2.9%) was dragged lower by Hang Seng index (-3.4%), whereas other EMs gained quite handsomely. MOEX Russia, BOVESPA Brazil and NIFTY India were up 9.4%, 6.1% and 4% respectively. MSCI India outperformed MSCI EM by 6% in March. LME Metals index gained 4.2% while Brent crude was up 2.8% m-o-m. Dollar index appreciated 0.9% in March. India 10Y Gsec yeild rose 8bps whereas US 10Y and Germany 10Y yields rose whopping 51bps and 41bps, respectively.
Domestic Macro & Markets
SENSEX gained 4% while BSE Midcap index and BSE Smallcap index were up 3.2% and 5.8% MoM respectively. Energy (+9.8%), Utilities (+8.8%) and Communication Services (+8.2%) outperformed the index while Discretionary (-1.9%), Staples (-1.2%) and Financials (+1.2%) lagged the most. Market breadth improved in February with 42% of BSE 200 stocks trading above their respective 200-day moving averages. FPIs sold US$4.7 bn of Indian equities in the secondary market while DIIs bought US$5.2 bn.
India's high frequency data update:
Positive momentum in GST collections, some pick up in manufacturing activity and steady exports bode well for decent economic recovery after the mild disruption caused by spread of the Omicron variant.
At INR 1.42 Tn, collections in March have marked all-time high levels and topped INR 1.3 Tn for the sixth consecutive month.
Power consumption in the month of March was 5.6% higher than March-21 and 29.7% higher than the consumption in March-2020.
Core sector production:
Core sector production rose 5.8% YoY in February as against a YoY rise of 4% in January and a decline of 3.3% in February last year.
Manufacturing IIP increased 1.1% in January vs decline of 0.9% in Jan last year.
Credit growth accelerated to 8.5% YoY as of 11-March against YoY growth of 6.5% as observed on 12-March 2021. Aggregate deposit growth remained flat at 8.8% YoY.
CPI inflation in February rose to 6.07% from 6.01% in January on the back of sequentially higher food (+5.9%) and rural inflation (+6.4%). WPI inflation increased 15bps to 13.11% in February.
Naukri jobspeak index for February was up 31%yoy led by increased hiring in sectors like retail and IT.
February trade deficit widened to US$21.2 bn as compared to US$17.4 bn in January. Exports increased 22.4% YoY to US$33.8 bn while imports increased by 35% YoY to $55 bn.
Balance of Payments:
The current account registered a deficit of US$23 bn (2.7% of GDP) in 3QFY22, widening from a deficit of US$9.9 bn in 2QFY22 (1.3% of GDP) and a deficit of US$2.2 bn in 3QFY21 (0.3% of GDP). This was mainly due to a widening of the trade deficit to US$60.4 bn (2QFY22: US$44.5 bn).
Decoupling of Govt security yield curve in the US and India:
There has been very sharp rise in yields across the curve in the US market. Not only rates have risen but the short-term yields have risen faster than long term yields leading to sharp flattening of yield curve at a time when rates are hardening. Experts are getting nervous on potential yield curve inversion in the US. A flattening curve typically means fear of that investors are losing faith on medium term economic growth outlook. In contrast, G-Sec yield curve in India remains reasonably steep. This is partly due to RBI's pro-growth and accommodative stance when domestic liquidity conditions remain benign as of now.
Near term market sentiment is likely to be influenced by the increased geopolitical risks in the backdrop of ongoing Russia-Ukraine conflict, higher inflation/ commodity prices, rate hikes by Global Central Banks and most importantly how these factors impact the Global/domestic growth possibilities. Accordingly, we anticipate higher than usual volatility or market swings in the short term.
From a domestic perspective while direct impact of Russian-Ukraine conflict, through trade channel may be limited, the indirect impact on Crude prices, Inflation, rising input or raw material prices needs to be monitored. Notwithstanding the short-term global risks and assuming that the geo-political tensions are diffused soon, we remain optimistic on a reasonable domestic recovery. Key drivers include - relaxation of most COVID led restrictions across states which may potentially spur demand, anticipated revival in investment cycle & domestic manufacturing, etc.
Accordingly, we are attempting to maintain balanced portfolios through a combination of domestic recovery themes along with secular businesses. Given the external risks and its potential impact we believe investing in a staggered manner or systematic route may help iron out market extremes. Based on the prevailing valuations diversified funds with allocations across market cap range may be considered from a medium-term view. Conservative investors seeking equity exposure with lower volatility may consider asset allocation strategies like - Balanced Advantage/Asset Allocator which manage equity allocations dynamically.
Note: The sectors mentioned are not a recommendation to buy/sell in the said sectors. The schemes may or may not have future position in the said sectors. For complete details on Holdings & Sectors of NIMF schemes, please visit website mf.nipponindiaim.com;
Past performance may or may not be sustained in future
Past performance may or may not be sustained in future
Chart of the month :
Rare decoupling visible in the Govt security yield curves of India and the US. Medium-term growth concerns might likely explain near inversion of the US yield curve.
Bloomberg, Nippon India Mutual Fund Research
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