Markets have been touching new 52-w highs around NIFTY 17400 levels despite globally high interest rates, high inflation, energy crisis in Europe & fears of recession. With inflation easing marginally in the US, the dollar index has declined marginally to 106. Prices of crude among other metals & mining commodities are inching up on expectations of improvement in the global economic situation.
FII which were net sellers to the tune of Rs. 18308 cr in September & Rs.489 cr in October have turned net buyers for MTD till 14th November 2022 to the tune of Rs.13579 cr. A correction in dollar index and falling US treasury yields, are leading to this inflow in the short term.
As per AMFI data, equity mutual funds inflows dropped m-o-m to Rs 9,390 cr in October vis-a-vis Rs 14,099 cr in September. Mutual fund industry’s net AUM stood at Rs 39,50,323 cr. Debt mutual funds continued to see net outflows in October as well. Debt funds saw a cumulative outflow of Rs 2,817 cr with overnight funds losing Rs 7,505 cr in October. Mutual fund folios crossed 13.90 lakh cr and retail MF folios touched an all-time high of 11.08 lakh cr. Monthly SIP Contribution stood at Rs 13,040 cr for October 2022. SIP AUM stood at Rs 6.647 lakh cr higher 29,495.20 cr m-o-m.
Gold finally found momentum after seeing seven months of consecutive losses and registering a bottom near $1,620/oz. December gold futures reacted positively to the slower U.S. CPI and renewed geopolitical tensions. We’re seeing signs of consolidation before a potential test of $1,800/oz and beyond. The price of gold in India for 24 carat has gone above Rs.53,000/10 gms. It was below Rs.50,000/10 gms a few months back.
Despite being off their highs from earlier this year, crude oil prices are still up YTD, and analysts do not rule out a new move up to above $100/bbl, barring severe oil demand-crippling recessions. Despite global economic headwinds and the still uncertain Chinese recovery due to Beijing’s Covid-management strategy, near-term risks in oil are skewed to the upside, The OPEC cut its 2022 global oil demand growth forecast for a fifth time since April, citing mounting economic challenges including high inflation and rising interest rates.
The Dollar index went up to 114.106 on 27th September 2022 from a low of 89.436 recorded on 5th January 2021. However, it came down subsequently to a low of 106.292 on 11th November 2022. Relief in the energy crisis in Europe, expectations of the US Fed going slow on interest rates hikes, and expected political stability in the UK, among other factors, can be attributed to the cause of this down move.
Consumer Price Index (CPI) inflation fell to a three-month low of 6.77% in October from 7.41% in the previous months on a favorable base effect. Food inflation eased to 7.01% in October from September’s 22-month high of 8.6%. Core inflation, or inflation minus the volatile food and fuel items, edged down marginally to 6%t in October from 6.1% in September. Despite the sizable fall in inflation in October, it has now spent 10 consecutive months above the 6% upper bound of the RBI’s 2-6 percent tolerance band.
Wholesale Price Index (WPI) fell to a 19-month low of 8.39% in October from 10.7% in September. Decline in the rate of inflation in October is primarily contributed by fall in the price of mineral oils, basic metals, fabricated metal products, except machinery and equipment; textiles; other non-metallic mineral products; minerals etc. Food articles inflation rose to 8.33% from 0.06% in October 2021. Wholesale inflation in crude petroleum and natural gas eased from 86.36% in October 2021 to 43.57% in October 2022. Manufactured products inflation in October stood at 4.42%, down from 12.87% in the year ago period.
The Index of Industrial Production (IIP) witnessed a growth of 3.1% in September. The growth was primarily owing to a rise in manufacturing and mining outputs as the manufacturing sector rose 1.8% in September 2022 as against a 4.3% growth recorded in the year-ago period. Mining output went up to 4.6%. Power generation, on the other hand, was up 11.6% during the month. The data is a strong indication of improving output and demand conditions in the economy.
The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) stood at 55.3 in October, up from 55.1 in September. The latest figure was above its long-run average (53.7), indicating a stronger improvement in the health of the sector. The services PMI rose to 55.1 in October from 54.3 in September. Favorable demand for services continued to underpin increases in new business and output at the start of the third fiscal quarter. The composite PMI rose to 55.5 in October from 55.1 in September,
As per Society of Indian Automobile Manufacturers (SIAM), 140,926 units of passenger cars were sold in October 2022 in comparison to 103,829 units in October last year. A total of 141,254 units of utility vehicles (UVs) were sold in the month of October versus 112,112 units in October last year. Three-wheeler wholesales last month rose to 54,154 units from 31,812 units in the year-ago period. Total two-wheeler dispatches last month increased 2% to 15,77,694 units as compared to October 2021. The passenger vehicles reported the highest-ever domestic sales in April-October 2022. But the sales of two-wheelers in these seven months this fiscal were still lower than that of 2016. In the second quarter of the FY23, commercial vehicle volumes grew 39% y-o-y. The pick-up was aided by replacement buying by fleet operators, increased government spending on growth sectors like infrastructure, back to office and school situations, and increased e-commerce demand
The Goods and Services Tax (GST) in October this year saw a 16.6% year-on-year jump at Rs.1.42 lakh cr, driven by festival-related spending, higher tax rates, and better compliance. This was the second-highest monthly collection since the implementation of the indirect tax regime in July 2017. Of the total gross GST mop-up in October, central GST (CGST) was Rs 26,039 cr, state GST (SGST) Rs 33,396 cr, integrated GST (IGST) Rs 81,778 cr (including Rs 37,297 cr collected on import of goods), and cess was Rs 10,505 cr (including Rs 825 cr collected on import of goods). Economists expect CGST collection to exceed the FY23 Budget Estimates by Rs 1.3-1.4 lakh cr.
Japan’s economy unexpectedly shrank for the first time in a year in the third quarter, as global recession risks, a weak yen and sharply higher import costs took a toll on household consumption and business activity. Economies in the European Union’s east slowed in the third quarter as consumers were hit by spiking energy costs triggered by Russia’s war in neighboring Ukraine and soaring interest rates. Britain’s inflation accelerated to 11.1% in October, highest in 41 years, driven by soaring energy, food and transport prices. The global economy continues to face steep challenges, shaped by the lingering effects of three powerful forces: The Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China. India’s biggest strength continues to be domestic economic activity, which has shown more resilience compared to the rest of the world.
Despite inflation falling significantly in October, it is unlikely to influence the RBI’s near-term interest rate decisions. We continue to expect the Monetary Policy Committee (MPC) to deliver a 35 bps rate hike (less than 50 bps previously expected) at the December meeting to bring the repo rate to 6.25%. The next RBI MPC meeting is scheduled on 5th-7th December.
Globally high inflation, rising interest rates coupled with a slowdown is worrying though fears of recession are receding. With inflation cooling down in the USA, we may see a slowdown in pace of rate hikes. Crude prices are again inching up on expectations of improving global demand. GST collections have remained strong above Rs.1.5 lakh cr partly due to high inflation. IIP numbers, low due to a base effect of last year, need to recover while inflation has to come down to the 4-6% band. The dollar index is declining from all-time highs. DII flows in addition to FII flows are strong and this should provide some boost to the markets. This is a good time to get into long term interest rate sensitive debt products. We strongly advise investors to continue their SIPs in equity funds & if possible increase the amount.
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Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 14 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.