Markets have been touching new 52-w highs over the last one month, NIFTY touching a high of 18887. We may see some profit booking, given the global economic situation, though improving, is still in a precarious position. With inflation easing marginally in the US, we are close to peak interest rates globally. In India this is a good time to accumulate quality stocks which have still not participated in the up move in stock markets.
FII which were net sellers to the tune of Rs. 18308 cr in September & Rs.489 cr in October, turned net buyers to the tune of Rs.22546 cr in November 2022 to the tune of Rs.13579 cr. They have again been net sellers to the tune of Rs.7490 ct MTD, 16th December 2022. We may see some outflows as long as FED rates are moving up.
As per AMFI data, the mutual fund industry’s total AUM stood at Rs 40.37 lakh cr at the end of November against Rs 39.50 lakh cr in October. On the other hand, the average AUM came in at Rs 40.49 lakh cr vs Rs 39.53 lakh cr. Inflows via systematic investment plans (SIPs) were at a fresh lifetime high of Rs 13,307 cr in November. The BSE Sensex rose 3.7% and Nifty was up 3.68% on a monthly basis in November. Debt funds saw net inflows of Rs 3,669 cr in November with some major buying in liquid funds (Rs 34,276 cr) and money market funds (Rs 4,942 cr).
Gold has been inching up gradually and close to $1800/oz in international markets. It has gone above Rs.54,000/10 gms in India. The prospects of further interest rate hikes by the US Federal reserve have kept gains in check. Gold is considered a hedge against inflation and economic uncertainties, but rising interest rates tend to dent bullion’s appeal as the metal pays no interest. The RBI has launched the Sovereign Gold Bond Scheme 2022-23 – Series III, which will be open for subscription from 19th to 23rd December 2022.
Oil prices that shot up after Russia invaded Ukraine in March plunged as low as $76.1 early December, bringing cheer for the economy. Supply chain tensions due to the war in Ukraine seem to have lessened and demand concerns have come to the forefront. China, the world’s top crude oil importer and No. 2 oil consumer, is experiencing its first of three expected waves of COVID-19 cases after Beijing relaxed mobility restrictions.
The Federal Reserve’s move on 14th December 2022 to raise its key rate by a half-point brought it to a range of 4.25% to 4.5%, the highest level in 14 years. They have indicated that the rates are projected to rise by a further 75 basis points in the calendar year 2023. The expected “terminal rate,” or point where officials expect to end the rate hikes, was put at 5.1%, according to the FOMC. Along with the increase came an indication that officials expect to keep rates higher through next year, with no reductions until 2024.
Consumer Price Index (CPI) inflation eased sharply to a 11-month low of 5.88% on an annual basis in November from 6.77% in October, 2022 amid cooling global commodity prices and higher borrowing costs. The number came within the Reserve Bank of India’s (RBI) tolerance band of 2-6% for the first time this year. Food inflation, which accounts for nearly half the CPI basket, came in at 4.67% in November as against 7.01% in the preceding month.
Wholesale Price Index (WPI) eased to a 21-month low of 5.85% in November from 8.39% in October on an annual basis, Food articles inflation rose to 2.17% from 8.33% in October. For the primary articles segment, the inflation rate stood at 5.52% as against 11.04% in the preceding month. Wholesale inflation in crude petroleum and natural gas surged to 48.23% in November from 43.57% in October. Inflation for manufactured products came in at 3.59% in November. The number has eased from 4.42% in October. Such a sharp fall in WPI could also be an indication of pricing power eroding for manufacturers.
The Index of Industrial Production (IIP) contracted 4% in October. While the IIP posted a deeper-than-expected contraction, mirroring the anemic performance of exports, this chiefly reflects holidays during the festive period. The manufacturing sector saw a contraction of 5.6% while mining and electricity grew 2.5% and 1.2% each in October 2022. Among the IIP (use-based), capital goods, intermediate goods, consumer durables and consumer non-durables contracted by 2.3%, 2.8%, 15.3% and 13.4% each in October while primary goods and infrastructure/construction goods grew 2% and 1% each.
The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) edged up to 55.7 from 55.3 in October. It was business as usual for goods producers, who lifted production volumes to the greatest extent in three months amid impressive evidence of demand resilience. S&P Global India services purchasing managers’ index rose to 56.4 in November from 55.1 in October, remaining above the 50-mark separating growth from contraction for a 16th straight month. Indian service providers continued to reap the benefits of strong domestic demand. The S&P Global India Composite PMI Output Index — which measures combined services and manufacturing output — rose from 55.5 in October to 56.7 in November.
Data released by the statistics ministry showed India’s GDP growth fell to 6.3% in July-September from 13.5% in April-June. While a sharp fall in growth was expected due to the fading away of a favorable base effect, economists were surprised by a 4.3% yoy contraction in the gross value added of the manufacturing sector in the last quarter. India has emerged as the fastest-growing major economy in the world. GDP is forecasted to grow at 6.8-7% in FY 23.
As per Society of Indian Automobile Manufacturers (SIAM), total PV dispatches to domestic dealers that includes passenger cars, UVs and vans were recorded at 2,76,231 units in November 2022 up 28% yoy. The growth comes out to be around 32% if 46,425 units sold by Tata Motors — that does not report sales to SIAM– are included. Total PV exports for November 2022 stood at 53,959 against 44,265 at the same time last year. Two-wheeler sales were 12,36,190 units in November 2022, up 16.5%. Around 45,664 units of three-wheelers were sold in November 2022, more than double from last year. We expect demand to remain strong on the back of economic recovery.
The Goods and Services Tax (GST) collections for November stood at Rs 1,45,867 cr, up by 11% yoy but nearly 4% below October’s kitty. State GST collections in November accounted for Rs.32,651 cr while the Integrated GST kitty was Rs.77,103 cr, including Rs.38,635 cr collected on import of goods. GST Compensation Cess collections were at Rs.10,433 cr, factoring in Rs.817 cr collected on import of goods – marginally lower than the Rs.10,505 cr collected in October 2022. India’s monthly GST collections are now averaging Rs 1.49 lakh cr.
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. The BOJ will expand the range of 10-year Japan government bond yield fluctuations from its current +/- 0.25% to +/- 0.5%. Inflation in USA is on the decline, though it remains sticky in UK & Europe.
Inflation in India is finally within the RBI band of 4-6%, and we feel that rates have peaked in India. We are unlikely to have any further rate hikes for the time being and the Monetary Policy Committee (MPC) is expected to hold repo rate at 6.25%. A sharp fall in WPI could be an indication of pricing power eroding for manufacturers.
Globally high inflation, high 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 hovering around $80/bbl with a negative bias due to higher Russian crude supply. GST collections have remained strong around 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 stabilize in 4-6% band. The dollar index is declining from all-time highs. DII flows are strong though FII flows are volatile leading to volatility in 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.