Macro and
Equity Market
Outlook
Equity Market
Outlook
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:
Manufacturing PMI continued to remain expansionary at 54.6 in
May’22, thereby pointing to a sustained recovery.
GST Collection:
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%.
Industrial Production:
Manufacturing IIP increased 0.9% YoY in March’22 vs 28.4% rise in
March last year.
Credit growth:
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.
Inflation:
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%.
Trade Deficit:
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.
GDP Growth:
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.
RBI:
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.
Market View
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.
Common Source:
RBI, Bloomberg, Nippon India Mutual Fund Research
Disclaimer: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.