Global Macro & Markets
Markets continued battling three key concerns: China, geopolitics and the Fed. Though both MSCI World and MSCI EM ended flat for the month, global markets ended mixed. Singapore, Australia, and Malaysia declined 3.7%, 3% and 1.9% while Shanghai, Brazil and Germany gained 4.6%, 3.5% and 2.1%. US 10Y rates declined 9 bps whereas India and Germany 10Y treasury rates were up 28 and 18 bps respectively. LME Metal Index declined 6% MoM. Brent crude oil prices rallied another 12.3% over the month despite Dollar index strengthening 1.6%.
Domestic Macro & Markets
Amid volatile sessions, the BSE-30 and Nifty-50 indices settled with a loss of 2.6% and 3% in the month of May. Mid-cap and small-cap indices underperformed large-cap and were down 5% and 8%. On the sectoral front, only Auto and FMCG indices ended in green. Metals, power and consumer durables indices declined 16%, 12% and 11% respectively. Market breadth declined further in May’22 with 25% of BSE 200 stocks trading above their respective 200-day moving averages. FPIs sold US$5.7 bn worth of Indian equities in the secondary market while DIIs bought US$6.3 bn.
India's high frequency data update:
Healthy GST collections, strength within core, manufacturing & agricultural sectors and rising exports bode well for the economy in near term.
Manufacturing PMI continued to remain expansionary at 54.6 in May’22, thereby pointing to a sustained recovery.
INR 1.41 Tn (+44% YoY) in May’22 recorded third consecutive month of collections over 1.4Tn mark, implying healthy overall economic activity and improvement in tax compliance.
Core sector production:
Core sector production rose 8.4% YoY in April’22 as against a YoY rise of 4.9% in March’22 and a rise of 62.6% same time last year. On a sequential basis, infra output decreased 9.5%.
Manufacturing IIP increased 0.9% YoY in March’22 vs 28.4% rise in March last year.
Credit growth accelerated to 10.8% YoY as of 6-May 2022 against YoY growth of 6% as observed on 7-May 2021. Aggregate deposit growth also grew 9.7% YoY.
CPI inflation in April’22 shot up to 7.79% YoY from 6.95% in March’22 led by increases in food and core inflation. WPI inflation rose 60bps to 15.1%.
April’22 trade deficit widened to US$20.1 bn as compared to US$18.7 bn in March’22. Exports increased 24% YoY to US$38.2 bn while imports increased by 26% YoY to $58.2 bn.
The 4QFY22 real GDP growth slowed to 4.1% (3QFY22: 5.4%), with private consumption being the laggard at 1.8% (3QFY22: 7.4%). Investment growth improved to 5.1% (3QFY22: 2.1%) and government consumption growth at 4.8%. Omicron wave led disruption led to sequential short-lived moderation in 4QFY22 growth.
Fiscal Measures to curb inflation:
With a view to curb inflationary pressures, the Central Government announced: (1) excise duty cuts of Rs8/litre for petrol and Rs6/litre for diesel (annualized revenue loss of around Rs1 tn with around 30 bps of lower inflation), (2) LPG subsidy of Rs200/cylinder (annualized loss of around Rs61 bn), (3) approval of additional expenditure of Rs1.1 tn for fertilizer subsidy, and (4) customs duty cuts for coking coal, naptha, ferro-nickel, propylene oxide, etc. and export duty hikes for select steel products. These measures follow the earlier decision of wheat exports ban.
The RBI Monetary Policy Committee (MPC), in an off-cycle meeting, unanimously voted to hike repo rate by 40 bps to 4.4% and continued with its focus on withdrawal of accommodation. Consequently, Standing Deposit Facility (SDF) rate and Marginal Standing Facility (MSF) rate increased to 4.15% and 4.65%. The RBI also hiked CRR by 50 bps to 4.5% which would withdraw liquidity of around Rs870 bn. The MPC highlighted that the domestic food inflation was being pushed up by global commodity prices with high and volatile crude oil prices also posing upside risks to inflation. Core inflation is also likely to remain elevated in the near term due to fuel prices and essential medicines. On the growth front, the MPC expects recovery in farm output and capex.
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: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 by 10.8% YoY led by sharp acceleration in retail loans followed by credit in MSMEs and infrastructure related loans.
RBI, Bloomberg, Nippon India Mutual Fund Research
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