Global Macro & Markets
Market continued to be volatile in June’22. Investors remained concerned about global recession amid monetary tightening due to elevated inflation. All major global markets declined over the month, except for Hang Seng index (+2.1%). MSCI World index declined 8.8% in June’22, in line with the fall in S&P500 (-8.8%) and Euro-50 (-8.4%). MSCI EM declined 7.1%, whereas NIFTY 50 India, BOVESPA Brazil and MOEX Russia declined 4.8%, 11.5% and 6.4% respectively. LME Metals Index witnessed a major fall of 14.5% MoM owing to fears of weakening demand. Brent crude was down 6.5% as well. Dollar index gained 2.9% over the month. US, Germany, and India 10Y G-Sec rates were up 17, 21 and 3 bps MoM and settled at 3.01%, 1.34% and 7.45% respectively.
Domestic Macro & Markets
SENSEX declined 4.6% in June’22. Mid-cap and small-cap indices underperformed large-cap and were down 6.2% and 6%. On the sectoral front, only Auto index ended in green. Metals, consumer durable and realty indices were the biggest losers, declining 14%, 9% and 6% in June. Market breadth declined further in June’22 with 19% of BSE 200 stocks trading above their respective 200-day moving averages. FPIs sold US$6.3 bn worth of Indian equities while DIIs bought worth US$5.1 bn.
India's high frequency data update:
Healthy GST collections, strength within core industries, manufacturing & agricultural sectors, resilient exports and accelerating credit growth bode well for the economy in near term.
Manufacturing PMI, though at 9-month low, continued to remain expansionary and resilient at 53.9 in June’22.
INR 1.44 Tn (+56% YoY) in June’22 recorded fourth consecutive month of collections over 1.4Tn mark, implying healthy economic activity and improvement in tax compliance. The growth could also be attributed to low base (second COVID wave) and transmission of elevated commodity prices.
Core sector production:
Core sector production rose 18.1% YoY in May’22 as against a YoY rise of 9.3% in April’22 and a rise of 16.4% same time last year. Growth was mainly led by petroleum refinery output up by 16.7% and electricity output up by 22% YoY.
Manufacturing IIP increased 6.3% in April’22 vs 196% rise in April last year.
Credit growth accelerated to 12% YoY as of 3-June 2022 against YoY growth of 5.7% as observed on 4-June 2021. Aggregate deposits also grew 9.3% YoY.
CPI inflation in May’22 moderated sharply to 7.04%YoY from 7.79% in April’22 led by moderation in sequential momentum. WPI inflation rose 80bps to 15.9%YoY.
May’22 trade deficit widened to US$23 bn as compared to US$20.1 bn in April’22. Exports increased 15.4% YoY to US$37.3 bn while imports increased by 56.1% YoY to $60.6 bn.
Balance of Payments:
India’s 4QFY22 current account deficit narrowed to US$13.4 bn (1.5% of GDP), compared to US$22.2 bn in 3QFY22led by moderation in the trade deficit to US$54.5 bn and lower net outflow of primary income. Overall, 4QFY22 BOP was at (-)US$16 bn. FY2022 current account reverted to deficit (1.2% of GDP) after a surplus (0.9% of GDP) in FY2021.
The Monetary Policy Committee (MPC) unanimously voted to raise the repo rate by 50 bps to 4.9% while remaining focused on withdrawal of accommodation. Consequently, Standing Deposit Facility (SDF) rate and Marginal Standing Facility (MSF) rate increased to 4.65% and 5.15%, respectively. Importantly, the phrase ‘remain accommodative’ has been dropped from the stance, removing any ambiguity regarding the way forward. We see this policy as a continuation of May’s off-cycle policy with the focus on inflation. The MPC noted the global risks emanating from (1) multi-decadal high inflation and slowing growth, (2) persistence of geopolitical tensions, (3) elevated commodity prices, especially crude oil, and (4) lingering Covid-19 related supply-chain bottlenecks.
For the month of June investor sentiment remained subdued given the uncertainties over a potential global recession, inflation worries followed by monetary tightening. We believe inflation may be closer to peaking out globally given the cool off in most of the commodity prices except oil.
Domestic high frequency indicators remained resilient despite the cyclical headwinds underlining the domestic recovery possibilities. Policy reforms, huge under investments in Capex, stronger corporate Balance Sheets alongside a transition to a multipolar world can aid manufacturing, exports and capex - creating a virtuous cycle of growth.
Accordingly, we are attempting to maintain balanced portfolios through a combination of domestic recovery themes along with secular businesses. The attempt is to identify relatively better valued opportunities across these themes.
From an investor’s perspective given the external risks and its potential impact 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 :
Credit growth rose 12% YoY led by acceleration in retail loans followed by credit offtake in MSMEs and infrastructure sub segments
RBI, Bloomberg, Nippon India Mutual Fund Research
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