Global Macro & Markets - Sep 2022
Indian markets fell in September, in line with major global markets, as concerns over global growth slowdown and inflationary risk prevailed. Major indices broadly fell over the month, with the Hang Seng index (-13.7%), the MSCI World (-9.5%), the MSCI EM (-11.9%) leading the fall. The S&P500 (-9.3%), the Euro 50 (-5.7%) and the Nikkei (-7.7%) witnessed sharp falls as well. Additionally, NIFTY 50 India, and MOEX Russia fell -3.7% and -18.4% MoM, while BOVESPA Brazil remained broadly flat over the same period, rising by +0.5%. LME Metals Index witnessed a fall of -5.3% MoM owing to a broad-based softening of demand, production ramp up in China and a stronger dollar. Brent crude dropped 8.8% MoM as well. Dollar index gained 3.1% over the month. US, India, and Germany 10 year G-Sec rates were up by 64, 21 and 54 bps MoM and settled at 3.83%, 7.40% and 2.11% respectively.
Domestic Macro & Markets - Sep 2022
SENSEX fell -3.5% in September Mid-cap and small-cap indices outperformed large-cap and were down 2.2% and 0.7% respectively. On the sectoral front, all sectors delivered negative returns, except for Pharma and FMCG Indices, with Power, Oil and Gas, and Realty Indices falling by roughly 9% each. Market breadth improved over the month with 56% of NIFTY 50 stocks trading above their respective 200-day moving averages. FIIs were net sellers in September, with FPI inflows ending after a two-month streak. FPIs sold US$1.4 bn (till September 29) worth of Indian equities in the secondary market, while DIIs bought US$1.7 bn (till September 30).
India's high frequency data update:
Sustained high GST collections, solid core, manufacturing sectors and agricultural sector outputs, accelerating credit growth & moderating inflation bode well for the Indian economy.
Manufacturing PMI fell MoM in September’22, reaching 55.1, to a 3-month low, but remained in expansion (>50 points) for the 15th straight month, with a moderated increase in new orders and output.
INR 1.47 Tn (+26% YoY) in September’22 recorded the seventh consecutive month of collections over 1.4Tn mark, with improving tax compliance and healthy festive season economic activity driving the sustained and rising collections.
Core sector production:
Core sector production contracted to a 9-month low of +3.3% YoY in August’22, owing to a higher base and a deceleration in output growth of steel, coal and electricity.
Manufacturing IIP moderated to a four-month low of a 2.4% YoY rise in July’22 vs a 12.3% rise in June’22, after normalisation of a favourable base effect, slowing export demand and heavy monsoon downpour in select regions hit output.
Credit growth accelerated to 15.01% YoY as of 9-September 2022 against YoY growth of 6.71% as observed on 10-September 2021.
CPI inflation in August’22 inched up marginally to 7% from 6.71% in July’22 led by adverse supply shocks and heightened global tensions. WPI inflation in August’22 fell 152bps MoM to 12.41%.
Indian imports in September’22 grew 5.4% YoY to $59.4 Bn, while Exports fell -3.5%yoy to $32.6 Bn, similar to last year’s export levels. Trade Deficit for September’22 stood at $26.7 Bn, marginally lower than August’22 level.
The MPC met in September’22 (28th to 30th) and decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.90% with immediate effect, as it maintained its stance of 'withdrawal of accommodation’. Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.65% and the marginal standing facility (MSF) rate and the Bank Rate to 6.1%. These rate hikes were set in accordance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The RBI aims to pre-empt second round effects of inflation and keep inflation expectations anchored, with a view that this may support medium-term economic growth.
Risk-off sentiment prevails globally as Central Banks continue to hike interest rates to tame inflation. Global growth concerns have led to cool off in the commodity prices including crude, which bodes well for India. We believe that inflation may have peaked out and may gradually come down.
Domestic high frequency indicators remained resilient despite the global headwinds underlining the domestic recovery possibilities. Policy reforms, huge under investments in Capex, stronger corporate Balance Sheets alongside a transition to a multipolar world may aid manufacturing, exports and capex - creating a virtuous cycle of growth. However, the near-term market sentiment could be potentially impacted by headwinds like global slowdown, especially in Europe, US and China along with higher interest rates, higher energy costs, etc.
After the recent sharp rally in equities, the market has rerated and may track pace of earnings recovery as multiple rerating has already happened.
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. Given our view that broader markets can do well with the present fundamentals, long-term investors can consider diversified strategies like multi-cap or flexi-cap offerings for pure equity investments. 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 :
Indian Equities outperformed global peers (Year to Date) on better growth inflation trade-off.
Nippon India Mutual Fund Research, Bloomberg
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