Global Macro & Markets
February was gripped by weakness in sentiment and spike in volatility mainly due to geopolitical risks arising from Russia attacking its neighbor Ukraine. MSCI world was down 2.7% dragged by Euro-50 (-6%) and S&P500 (-3.1%). MOEX Russia was down 30% over the month. MSCI EM lost 3.1% whereby Hang Seng and NIFTY were down 4.6% and 3.1% MoM respectively. Brent Crude stood to be the biggest gainer of the crisis, crossing the $100/bbl mark and gaining 10.7% over the month. It has been the third consecutive month for 10%+ movement in Crude oil. LME Metals index also gained 5.9% MoM. Bond yields remained flat with US 10Y up 5bps to 1.82% while India 10Y 8bps up at 6.76%.
Domestic Macro & Markets
SENSEX declined 3% while broader market was even weaker as BSE Midcap index and BSE Smallcap were down 5.1% and 8.8% MoM respectively. Materials (+1.2%), Healthcare (-0.2%) and Staples (-1.8%) outperformed the index while Communication Services (-7.1%), Discretionary (-5.5%) and Financials (-5.4%) lagged the most. Market breadth dipped in February with 35% of BSE 200 stocks trading above their respective 200-day moving averages. FPIs sold US$4.5 bn of Indian equities in the secondary market while DIIs bought US$5.6 bn.
India's high frequency data update:
Positive momentum in GST collections, and steady growth in manufacturing sector bodes well for quick recovery of the economy after the mild disruption caused by spread of the Omicron variant.
Manufacturing PMI continued to remain expansionary at 54.9 in February’22, quite better compared to 54 in January’22. International demand rose at the quickest pace in three months, though the increase was moderate.
With collections at INR 1.33 Tn (+17.6% YoY) in February’22, collections topped INR 1.3Tn mark for the fifth time now.
Power consumption in the month of February’22 was 4.5% higher than February’21 and 8.1% higher than the consumption in February’20.
Core sector production:
Core sector production rose 3.7% YoY in January’22 as against a YoY rise of 4.1% in December’21 and rise of 1.3% in January last year.
Manufacturing IIP declined 0.1% in December’21 vs growth of 2.3% in December last year.
Credit growth remained 7.9% YoY as of 11-Feb 2022 against YoY growth of 6.6% as observed on 12-Feb 2021. Aggregate deposit growth remained flat at 9.1% YoY.
CPI inflation in January’22 shot up to 6% from 5.66% on the back of elevated fuel and light inflation (+33%) and core inflation (+6.2%). WPI inflation moderated to 13%.
December’22 trade deficit narrowed to US$17.8 bn as compared to US$22 bn in December’21. Exports increased 25% YoY to US$34.5 bn while imports increased by 24% YoY to $51.9 bn.
Balance of Payments (BOP):
Real GDP in 3QFY22 grew 5.4% as against the growth of 0.7% same quarter last year and 8.5% in 2QFY22. Growth was majorly led by private consumption growth of 7% (10.2% in 2QFY22). Government consumption grew 3.4% (9.3% in 2QFY22), and investments (GFCF) grew 2% (14.6% in 2QFY22).
Green Hydrogen Policy:
On February 17, the ministry of power unveiled India’s much-awaited green hydrogen policy. The guidelines are a step in the right direction to ensure that green hydrogen is used to decarbonise and reduce emissions in the hard-to-abate sectors like fertiliser manufacturing, oil refining and others. This mayalso enable the government to meet its other objectives of energy security, energy self-reliance, reducing imports of expensive fossil fuels and thereby the import bill. It is also a huge opportunity to build a new billion-dollar industry that may create jobs.
Near term market sentiment is likely to be influenced by the increased geopolitical risks in the backdrop 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 :
The economy has opened almost completely as daily COVID-19 cases have remained less than one lakh for 24 consecutive days. Recovery has further improved to 98.6% and test positivity rate has declined to below 1.5% and daily cases fell to nearly 20k.
WHO, Nippon India Mutual Fund Research, Bloomberg
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