20 Jun 2023
Every sector in India has visibly transformed in the last decade, be it investments in mutual funds, the development of highways, or electrified railways. India was earlier a coach to the global growth train. Now, it is becoming the engine. Likely to contribute about 13% to incremental global growth, India can be the second largest contributor over the next five years, ahead of the United States, Germany, Japan, United Kingdom and France.
(Source for the above data: IMF; YES Securities; Morgan Stanley)
- Central Banks around the world are raising interest rates, resulting in a little bit of containment of inflation.
- While countries like Germany have already announced recession, the probability is increasing in some others.
- Fortunately for India, it is in far better shape with zero probability of recession.
- Liquidity in the United States did not come down much. In fact, it went up thanks to the recent crisis in some US banks.
- The US banking system post the recent banking crisis is very cautious. Their lending standards are becoming tighter, creating some tailwinds for growth.
- As interest rates in the US have started moving up, so has the interest burden on the US government, which is at the highest level in history.
- However, based on past behaviour, the federal bank may not keep key interest rates high for long.
(Sources for the above data: Federal Reserve; Bloomberg; Charlie Bilello; Y Charts; Emkay Research; Fred)
Domestic Economic Outlook:
- Purchasing Managers Index (PMI) for manufacturing and services has been reasonably well in expansionary mode and reasonably well ahead of peer countries. This means that manufacturing and services growth might continue to remain robust.
- GDP growth for the fourth quarter ending March 2023, as well as for the full 2022-23 fiscal was ahead of expectation and gives confidence that growth seems to be picking up.
- As on May 31, 2023, GST collection remains above Rs 1.57 crore, showing compliance improvement and actual collection improvement.
- Consumer sentiment, which dipped during the Covid pandemic, is slowly and steadily picking up. It is expected that they might touch pre-Covid levels at some point in time.
- Rural economic sentiment has started moving up and gives confidence that consumption can be possibly on the positive side.
- One of the reasons for the slowdown in the economy was real estate, where RERA progressive law impacted the real estate sector for the short term adversely; now the sector has bottomed out of those shocks and started moving up in terms of both sales and new product launches.
- By building infrastructure, India demonstrates the possibility to build its export share. The expectation is, India might witness higher export growth in services in days to come.
- For investments, you require money, and the Indian banking system is in very good shape and equipped to provide financing for investment requirements.
(Sources for the above data: Morgan Stanley Research; S&P Global CEIC; Axis Capital; NSO; CMIE; RBI; IMF)
Outlook for oil prices:
Oil prices have started correcting and have remained low despite Russia's Ukraine conflict. The only factor to watch out for is the recent announcement by Saudi Arabia to cut one million barrels of oil output per day from July. This can cause higher oil prices.
(Source for the above data: Bloomberg)
Outlook for monsoons:
The Australian weather bureau has raised a warning on El Nino. We will have to see if this will have an adverse impact on the Indian monsoon or not, as a large part remains dependent on rain. However, the rural economy is slowly progressing towards non-agricultural activities also. Besides, infrastructure is also providing mobility to rural India. Hopefully, the impact of the bad monsoon maybe be contained.
(Source for the above data: Jefferies)
Equity and debt outlook:
- Foreign investors might turn out to be buyers in India because India is turning out to be a defensive market. Our volatility vis a vis peer group and our beta vis a vis peer group are coming down significantly. We are becoming a blue-chip stock in an emerging market.
- The corporate earnings for quarter ending March 2023, has been ahead of expectations. Of the nifty 50 companies, 21 delivered above expectations, and 16 delivered in line with expectations.
- Valuation wise Indian markets are fairly priced.
- As on June 5, 2023, If we look at indices, auto, FMCG, and capital goods are near their all-time highs. We are expected to be positive on automobiles, capital goods and financial services.
- Realty, Indian power technology is most distant from lifetime highs.
- Domestic investors continue to support mutual funds, and thanks to them, we have been able to absorb Foreign Portfolio Investors (FPI)buying. If FPI continues to buy and show maturity the market stands a chance to get support from a flow point of view. The bottoms of the market can be at a higher level.
- The 10-year bond yield has recently declined from 7.5 to 7 per cent, as on May 31, 2023. This is driven by an expectation that global interest rates will be cut over a period of time.
(Sources for the above data: Bloomberg; Elara Securities Research; Morgan Stanley Research; Motilal Oswal; KMAMC Internal Research; Kotak Institutional Equities; BS Research Bureau).
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