Global Macro & Markets
Persistently high inflation owing to seemingly prolonged supply chain conundrums and resultant tightening worries have impacted global equities and bonds alike. US 10Y is up 60bps MoM and 202bps YTD. US Dollar index has strengthened 4.7% MoM. LME Metals index had peaked in March and was down 6.6% over the month. Amid weak global cues and probability of aggressive rate hike by the US Fed, MSCI World Index fell 8.4% MoM. It was dragged lower by S&P500 (-8.8%), NIKKEI (-3.5%) and Euro-50 (-2.6%). NIFTY 50 India (-2.1%) outperformed other major EMs (Emerging Markets). MSCI EM Index was down 5.7%, wherein Brazil Bovespa, MOEX Russia & Hang Seng were down 10%, 9.6% and 4.1% respectively.
Domestic Macro & Markets
Indian markets have been buoyant and resilient since the global markets recovered from the pandemic lows in last two years. Broader markets outperformed the narrow index over the month. BSE Midcap index and BSE Smallcap index were up 1.3% and 1.4% MoM whereas SENSEX was down 2.6%. Among sector indices, IT, Realty and Metals declined 12%, 4% and 3% respectively, while utilities gained 18% during the month. Market breadth declined in April with 42% of BSE 200 stocks trading above their respective 200-day moving averages. FPIs sold US$3.6 bn of Indian equities in the secondary market while DIIs bought US$3.6 bn.
India's high frequency data update:
All-time high GST collections, strength within manufacturing activity and rising exports bode well for the economy.
Manufacturing PMI continued to remain expansionary at 54.7 in April’22, quite better compared to 54 in March’22. Factories continued to scale up production at an above-trend pace, with ongoing increase in sales and input purchasing suggesting that growth will be sustained in near-term.
At INR 1.68 Tn (+20% YoY), collections in April’22 have marked all-time high levels on the back of improved compliance, enforcement action against tax evaders and pickup in economic activity.
Core sector production:
Core sector production rose 4.3% YoY in March’22 as against a YoY rise of 6% in February’22 and a rise of 12.6% same time last year. On a sequential basis, infra output increased 14.6%.
Manufacturing IIP increased 0.8% in Feb’22 vs decline of 3.4% in Feb last year.
Credit growth accelerated to 10.1% YoY as of 8-Apr 2022 against YoY growth of 5.3% as observed on 9-Apr 2021. Aggregate deposit growth also grew 10.1% YoY.
CPI inflation in March’22 shot up to 6.95% from 6.07% on the back of sequentially higher food (+7.7%) and rural inflation (+7.7%). WPI inflation increased 140bps to 14.5%.
March’22 trade deficit widened to US$18.7 bn as compared to US$21.2 bn in February’22. Exports increased 14.5% YoY to US$40.4 bn while imports increased by 21% YoY to $59 bn.
Balance of Payments:
The current account registered a deficit of US$23 bn (2.7% of GDP) in 3QFY22, widening from a deficit of US$9.9 bn in 2QFY22 (1.3% of GDP) and a deficit of US$2.2 bn in 3QFY21 (0.3% of GDP). This was mainly due to a widening of the trade deficit to US$60.4 bn (2QFY22: US$44.5 bn).
Fertilizer subsidy – revised:
The Cabinet increased the subsidy rate for Phosphatic and Potassic (P&K) fertilizers under the Nutrient Based Subsidy (NBS) scheme for the period April-September 2022. Rs 609 bn of subsidy (for 1HFY23) was approved including support for indigenous fertilizer (SSP) through freight subsidy and additional support for indigenous manufacturing and imports of Di-ammonium phosphate (DAP). Subsidy budgeted for P&K fertilizers in FY2023 was Rs 420 bn.
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: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 :
MSCI India has outperformed MSCI World and MSCI EM by 52% and 76% respectively since March 31, 2020 (25 months period).
Bloomberg, Nippon India Mutual Fund Research
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