Global Macro & Markets
2022 started on a volatile note as the US Fed signaled faster tightening of monetary policy. US 10Y interest rates rose 27 bps while the Dollar index strengthened 0.9% over the month. MSCI World was down 5.3%, in line with the fall in S&P 500 (-5.3%). Euro-50 and Japanese Nikkei lost 2.9% and 6.2% respectively. NASDAQ composite, however, fell almost 9% over the month as Tech stocks globally stood to be the biggest losers of the Fed’s faster than expected rate hikes. MSCI EM was down 1.9%. BOVESPA Brazil rebounded to gain 7% while MOEX Russia lost 6.8% MoM. India’s NIFTY (-0.1%) remained flat MoM. LME Metals index stayed resilient with 1.9%m/m gains. Brent Crude, standing the single largest beneficiary of the geopolitical tensions between Russia and Ukraine, gained 17.3%m/m.
Domestic Macro & Markets
Sensex rose about 5% by January 17, only to give it all back during the rest of the month. Broader market marginally underperformed over the month. BSE Midcap index and BSE Smallcap index were both down 1.4% and 0.8% respectively. Among sector indices, Utilities (+14%), Financials (+3%) and Discretionary (+3%) outperformed the index while IT (-9%), HealthCare (-8%) and Staples (-5%) lagged the most. Market breadth improved in January with 54% of BSE 200 stocks trading above their respective 200-day moving averages. FPIs sold US$3.8 bn of Indian equities in the secondary market while DIIs bought US$2.5 bn.
India's high frequency data update:
Positive momentum in GST collections, manufacturing activity and exports bode well for near term economic rebound after mild disruption caused by the rapid spread of the Omicron variant.
Manufacturing PMI continued to remain expansionary at 54 in January'22, albeit slowly compared to 55.5 in December'21.
With collections at INR 1.41 Tn (+15% YoY) in January'22, the Government recorded highest ever collections since the inception of the GST in July 2017.
Power consumption in the month of January'22 was 1.1% higher than January'21 and 5.9% higher than the consumption in January'20.
Core sector production:
Core sector production rose 3.8% YoY in December'21 as against a YoY rise of 3.4% in November'21 and rise of 0.4% in December last year.
Manufacturing IIP rose 0.9% in November'21 vs dip of 1.6% in November last year.
Credit growth inched up to 8% YoY as of 14-Jan'22 against YoY growth of 6.4% as observed on 15-Jan 2021. Aggregate deposit growth remained flat at 9.3% YoY.
CPI inflation in December'21 shot up to 5.59% from 4.91% on the back of elevated fuel and light inflation (+11%) and core inflation (+6.2%). WPI inflation moderated to 13.6%.
December'21 trade deficit came at US$22 bn as compared to US$22.9 bn in November'21. Exports increased 37% YoY to US$37.3 bn while imports increased by 38% YoY to $59.3 bn.
Balance of Payments (BOP):
The current account registered a deficit of US$9.6 bn (1.3% of GDP) in 2QFY22 against a surplus of US$6.5 bn in 1QFY22 (0.9% of GDP) and surplus of US$15.3 bn (2.4% of GDP) in 2QFY21. The deficit was led by a widening of the trade deficit to US$44.4 bn (1QFY22: US$30.7 bn) and an increase in net investment income outflow of US$10 bn (US$7 bn in 1QFY22).
The budget maintained a pro-growth bias with transparent and credible set of assumptions for tax revenue growth as well as expenditure plans. Capital expenditure growth is pegged at 24.5%yoy in FY23, which will take central govt’s capex-to-GDP to an 18 year high of 2.9%. From extension of credit guarantee scheme for SMEs and MSMEs to touching upon battery swap policy for EVs and incentivizing solar cell manufacturing in India, focus has been on an all-inclusive secular growth of the economy. Fiscal consolidation along with improvement in quality of spending were key highlights of the Union budget.
Domestic economic recovery is likely to be in line with expectations supported by:
- Robust government capital spending, nascent signs of private corporate capex recovery, and revival in housing investment
- Strong Urban discretionary Consumption driven by pent up demand
- Healthy Exports
We believe broad based recovery in the markets will continue (with volatility) as the economy revives and earnings growth is expected to sustain on continued macro recovery. Technology, China+1 and Domestic recovery/outdoor consumption may be key themes dominating the market. Major risks to our view are higher Inflation, Oil price, New virus variants.
We believe all three market cap segments (Large, Mid and Small) offer similar risk reward, making a case for diversified strategies with investments across market caps. Conservative investors seeking equity exposure with lower volatility may consider asset allocation strategies like Balanced Advantage etc 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 :
Rise in corporate tax collection by 39% and 13% in FY22 and FY23 basis budget estimates is indicative of sustained rise in Corporate Profits to GDP ratio for India.
Budget Documents, Nippon India Mutual Fund Research, Bloomberg
Disclaimer:The views expressed herein are based on publicly available information and other sources believed to be reliable. It is issued for information purposes only and is not an offer to sell or a solicitation to buy/sell any mutual fund units/securities. It should be noted that the analysis, opinions, views expressed in the document are based on the Budget proposals presented by the Honourable Finance Minister in the Parliament on Feb 1, 2022 and the said Budget proposals may change or may be different at the time the Budget is passed by the Parliament and notified by the Government. The information contained in this document is for general purposes only and not a complete disclosure of every material fact of Indian Budget. For a detailed study, please refer to the budget documents available on http://www.indiabudget.gov.in The information herein above is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsors, the Investment Manager, the Trustee or any of their directors, employees, Associates or representatives (‘entities & their Associate”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material, shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.