Global Macro & Markets
Owing to concerns around the US taper and ripple effect of the Evergrande crisis in China, global equities took a pause on its winning streak and declined 4.3% in September, sharpest monthly decline since March-2020. NIKKEI (+4.9%) outperformed S&P500 (-4.8%) and Euro-50 (-3.5%). Fall in Emerging Markets (-4.2%) was led by Hang Seng (-5%) and BOVESPA Brazil (-6.6%), while NIFTY India (+2.8%) and MOEX Russia (+4.1%) outperformed the index. Crude oil prices rallied 7.6%m/m owing to a decline in US crude inventory, lower supply concerns and higher global demand outlook by the IEA (International Energy Agency) and OPEC (Organization of the Petroleum Exporting Countries). LME Metals index ended the month 3.1% lower in contrast to crude oil prices.
Domestic Macro & Markets
India was among the best performing markets globally, taking its year-to-date relative outperformance to 30 ppt compared to MSCI EM Index. BSE MidCap index (+5.9%) and BSE SmallCap index (+4.3%) resumed outperformance against SENSEX (+2.7%) after the first monthly underperformance of the year in August. Among sector indices, Energy (+12%), Discretionary (+6%) and Communication Services (+6%) gained the most while Materials (-2%), HealthCare (-1%) and Financials (0%) lost the most. Market breadth rose in September as 89% of BSE 100 stocks remained above their respective 200-day moving averages. FPIs bought US$1227 Mn of Indian equities while DIIs bought US$789 Mn.
India's high frequency data update:
With current account in surplus, GST collections improving, manufacturing activity expanding and inflation moderating, macro data has been quite encouraging in recent period.
Manufacturing PMI rose to 53.7 in September compared to 52.3 in August. The factory activity rose on account of production growth boosted by stronger new order inflows, companies scaling up input buying and acceleration in input cost inflation.
Collections in September picked up to INR 1.17 Tn (+23% YoY) as compared to INR 1.12 Tn in August, crossing the crucial INR 1 Tn mark for third month in a row, indicating a fast recovery.
Power consumption in the month of September was 0.8% higher than September-20 and 5.5% higher than the consumption in August 2019.
Core sector production:
Core sector production rose 9.3% in August as against a YoY rise of 16.4% in July and fall of 6.9% in August last year.
Manufacturing IIP rose by 10.5% YoY in July vs a fall of 11.4% in July of last year.
Credit growth remained sluggish at 6.7% YoY as of 10-Septmber against YoY growth of 5.3% as observed on 11-September 2020. Aggregate deposit growth fell to 9.3% YoY.
CPI inflation in August moderated to 5.3% from 5.6% as observed in July led by lower-than-expected food inflation. WPI inflation came at 11.4% in July increasing from 11.2% in June led by fuel and power inflation at 26.1% and inflation for basic metals at 27.5%.
August trade deficit further widened to US$13.9 bn as compared to US$11 bn in July. Non-oil exports increased 36.6% to US$28.6 bn over August 2020 while non-oil imports increased 43.9% YoY to US$35.4 bn.
Current Account Balance:
The current account registered a surplus in 1QFY22, rising to $6.5 bn (0.9% of GDP) against a deficit of US$8.2 bn in 4QFY21 (-1% of GDP). The surplus was led by moderation in trade deficit to US$30.7 bn and an increase in net services receipts to US$25.8 bn.
Though delayed and erratic, 32% excess rain in September helped offset the 24% and 6.8% deficiency in August and July rainfall respectively. With rainfall amounting to 99% of the long period average, it has been a good monsoon, making it third consecutive normal monsoon in India.
The DISCOM reform scheme
All Indian states have come on-board for the INR 3 Trillion DISCOMs reforms scheme. The new 'Reforms-based and Results-linked, Revamped Distribution Sector Scheme' seeks to improve the operational efficiencies and financial sustainability of all discoms/power departments (excluding private sector discoms) by providing conditional financial assistance to discoms for strengthening of supply infrastructure.
Indian equity market sentiment has remained resilient despite the record high valuations supported by higher liquidity, strong earnings possibility, relatively lower rates. In our view profit to GDP ratio in India may continue to rise in a foreseeable future as lot of segments which hitherto had not contributed meaningfully are witnessing a turnaround. The improving domestic macro data suggests that a reasonable economic recovery is underway. Capex revival, business normalization, improving global trade and domestic consumption are key contributors to this anticipated recovery.
Higher inflation may pose a potential challenge for prevailing easy liquidity & lower rates and any faster than expected normalization in the same may impact market sentiment. Geo-political developments and oil prices are other key areas to be tracked.
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.
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 :
In contrast to some near-term growth challenges in the rest of the World, Indian manufacturing has been resilient on the back of improvement in domestic demand.
IHS Markit, Nippon India Mutual Fund Research, Bloomberg
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