Global Macro & Markets
Even amid concerns over surging cases of a more virulent Omicron variant, rising inflation and the hawkish tone by global central banks, MSCI World and MSCI EM delivered 4.2% and 1.6% respectively over the month in December 2021. Euro-50 (+5.8%) led the DM rally followed by S&P 500 (+4.4%) and NIKKEI (+3.5%). While almost all markets globally ended higher than previous month, MOEX Russia (-2.7%) and Hang Seng (-0.3%) dragged the EM index. Commodities had a good month as fear over the impact of Omicron on the global economy receded, with early data suggesting it causes a milder illness versus previous variants like Delta. LME Metals index jumped 4% while Brent Crude oil gained over 10% MoM.
Domestic Macro & Markets
SENSEX and NIFTY both settled with over 2% gain each. While BSE MidCap index (+1.1%) lagged, BSE SmallCap index (+5.4%) continued its outperformance over the narrow index. Among sector indices, IT (+10%), Industrials (+5%) and Discretionary (+3%) outperformed the index while Energy (-1%), Financials (-1%) and Staples (0%) lagged the most. Market breadth declined in November with only 50% of BSE 200 stocks trading above their respective 200-day moving averages. FPIs sold US$3.5 bn of Indian equities in the secondary market while DIIs bought US$4 bn.
India's high frequency data update:
With real GDP now above pre-COVID levels, GST collections at all time highs, manufacturing activity expanding and inflation settling at moderate levels, macro data has been quite encouraging over the month.
Manufacturing PMI continued to remain expansionary at 55.5 in December’21, albeit slowly though when compared to 57.6 in November’21. International demand for Indian goods continued to improve in December as new export orders rose for the sixth month in succession.
Collections at INR 1.3 Tn (+13% YoY) in December’21 were in line with the collections of INR 1.32 Tn in November’21 and INR 1.3 Tn in October’21.
Power consumption in the month of December’21 was 2.8% higher than December’20 and 8% higher than the consumption in December’19.
Core sector production:
Core sector production rose 3.1% YoY in November’21 as against a YoY rise of 7.5% in October’21 and decline of 1.1% in November last year.
Manufacturing IIP rose 2% YoY in October’21 vs a rise of 4.5% in October last year.
Credit growth inched up to 7.3% YoY as of 3-Dec’21 against YoY growth of 5.7% as observed on 4-Dec’20. Aggregate deposit growth declined to 9.4% YoY.
CPI inflation in November’21 increased to 4.9% from 4.5% on the back of higher food prices and core inflation rising from 6% to 6.3% sequentially. WPI inflation came at a decadal high of 14.2% as fuel and power inflation rose sharply to 39.8%.
November’21 trade deficit rose to US$22.9 bn as compared to US$19.9 bn in October’21. Exports increased 27.2% YoY to US$30 bn while imports increased by 56.6% YoY to $52.9 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$7 bn in 1QFY22).
Year in Review
Indian Market was one of the best performing Emerging Markets in 2021. The Nifty Index was up 22.4% in US$ terms and 24.1% in INR terms, touching an all-time high level in October and outperformed the MSCI EM Index by over 29%. Mid-cap and Small-cap indices returned over 46% and 59% respectively over the year. INR remained range bound and depreciated 1.7% to close at Rs.74.3/US$. India 10Y bond yield jumped to 6.45% in Dec’21 from 5.87% a year back . FPIs sold US$7 bn in CY2021 while DIIs bought US$12 bn in CY2021.
Concerns on emergence of a new variant has led to higher volatility across the globe. Also, some indicators suggest that global growth may be slower. However, we believe that if the impact of new virus strain is controlled, Indian recovery is likely to be in line with expectations supported by strong earnings growth, capex revival etc.
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 Multi Asset/Balanced Advantage etc which diversify risk across different asset classes and/or 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 :
Government has been conservative in its spending so far in FY22. Given buoyant tax revenue collections, Government may increase spending
CMIE, Nippon India Mutual Fund Research, Bloomberg
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