Global Macro & Markets - Aug'22
Indian markets continued to rise for the second continuous month and continue to outperform global peers despite the macro-uncertainty around both global growth and inflation. Major global markets provided mixed returns over the month, with the Hang Seng index (-1.0%) and the MSCI World (-4.3%), falling, in line with the fall in the S&P500 (-4.2%) and Euro-50 (-5.1%). MSCI EM remained flat, and the Nikkei finished 1% up, MoM. Additionally, NIFTY 50 India, BOVESPA Brazil and MOEX Russia rose 3.5%, 6.2% and 8.4% respectively. LME Metals Index witnessed a fall of -2.9% MoM owing to a broad-based softening of demand and slowing industrial activity in major economies. Brent crude was down 12.3% in August’22. Dollar index gained 2.6% in August to record high levels. US and Germany 10Y G-Sec rates were up by 54 and 72 bps MoM respectively and settled at 3.19%, 1.54%. India’s 10Y G-Sec rates fell by 13 bps and finished the month at 7.19%.
Domestic Macro & Markets - Aug'22
SENSEX rose 3.4% in August. Mid-cap and small-cap indices outperformed large-cap and were up 6% and 5% respectively. On the sectoral front, all sectors delivered positive returns, except for IT, with Power, Capital Goods and Consumer Durables rising 15%, 8% and 8% respectively. Market breadth improved over the month with 59% of BSE 100 stocks trading above their respective 200-day moving averages. FIIs were net buyers in August, with FPI inflows ending positive for the second consecutive month (+$6.3bn), and DIIs recording net outflows (-$0.9 bn) for the first time after recording net inflows for 17 straight months. Mutual funds and Insurance funds were both net sellers in August with $0.2bn outflows and $0.7bn outflows respectively.
India's high frequency data update:
Rising GST collections, strengthening core and manufacturing sector output, moderating inflation and accelerating credit growth bode well for the economy.
Manufacturing PMI fell MoM in August’22, reaching 56.2, from an 8-month high of 56.4 in July’22. Output and New orders rose to highest levels since November 2021.
INR 1.43 Tn (+28% YoY) in August’22 recorded the sixth consecutive month of collections over 1.4Tn mark, with improving tax compliance and healthy festive season aiding economic activity.
Core sector production:
Core sector production growth declined to a 6-month low of +4.5% YoY in July’22, moderating against a YoY rise of 18.1% in May’22. Growth was mainly led by coal output, which was up by 11.4% and fertiliser output up by 6.2% YoY.
Manufacturing IIP moderated to a 12.3% YoY rise in June’22 vs a 19.6% rise in May’22, led by boost in manufacturing and electricity, making it the 16th straight month of positive IIP growth.
Credit growth accelerated to 15.16% YoY as of 12-August 2022 against YoY growth of 6.55% as observed on 13-August 2021. Aggregate deposits also grew 8.84% YoY.
CPI inflation in July’22 moderated marginally to 6.71% from 7.01% in June’22 led by moderation in sequential momentum. WPI inflation in June fell 125bps to 13.93%.
India’s merchandise trade deficit climbed to a record high of USD 31 Bn in July 2022, widening by USD 5.8 Bn compared to June, led by a shrinkage in exports. Exports declined by USD 6.1 Bn MoM to USD 36.3 Bn in July 2022, while imports fell by USD .3 Bn MoM to reach USD 66.3 Bn.
RBI meeting outcome:
In August’22 MPC meeting, the RBI remained focused on withdrawal of accommodation to ensure that inflation remains within the objective medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2 per cent, while supporting growth. It was decided that the policy repo rate under the liquidity adjustment facility (LAF) would be raised by 50 basis points to 5.40% with immediate effect. The MPC noted that inflation is projected to remain above the upper tolerance level of 6% through the first three quarters of 2022-23, entailing the risk of destabilising inflation expectations and triggering second round effects. Given the elevated level of inflation and resilience in domestic economic activity, the MPC took the view that further calibrated monetary policy action is needed to contain inflationary pressures, pull back headline inflation within the tolerance band closer to the target, and keep inflation expectations anchored to ensure that growth is sustained.
Domestic markets extended the rally in the month of Aug’22 amidst the volatility. Global growth concerns continue to persist with Fed indicating a hawkish policy stance to tame inflation and Chinese growth also under pressure with the zero covid policy. Commodities prices have cooled off owing to the demand concerns. Supply-side pressure is also normalizing at a global level, except on the energy side. 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.
While market valuations appear to be in neutral territory, earnings growth continue to be in line with the expectations. A good part of the market earnings is linked to the domestic economy, which remains robust. Fall in commodity prices are likely to ease margin pressure in the coming quarters.
Accordingly, 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. 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 :
Indian Scheduled Commercial Bank Credit Growth (YoY%, Quarterly) Reached Multi-year high in August 2022.
CMIE, Nippon India Mutual Fund Research, Bloomberg
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