April, 2022
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Equity Outlook |
➢ Despite multiple headwinds like geopolitical tensions between Russia and Ukraine, impending rate hike by Central Banks, rising crude prices, Indian markets (Nifty 50) delivered a return of 4% in the month of March 2022 and ~19% in FY 22
➢ The macro environment continues to remain challenging with persistent Inflation, rising bond yield (domestic and global), rising rate cycle and ongoing geopolitical crisis.
➢ Brent crude oil futures moved from US$64/bbl to a high of ~US$140/bbl in FY 22. Oil prices, currently hovering around $ 100-110 mark, has adverse impact on India's Current Account Deficit (CAD), GDP and inflation.
➢ Indian Markets still trades at a valuation premium compared to its historical averages and other emerging markets
➢ Markets may continue to consolidate and remain volatile in the near term with news flows around Russia - Ukraine conflict, persistently higher inflation, central banks' action on policy tightening etc.
➢ Market may witness diverge sectoral impact with sectors having oil & derivate as raw material getting impacted adversely while BFSI, IT may have lower impact. BFSI is preferred sector.
➢ Risks to downside has increased with the recent rebound and elevated valuation.
➢ Return expectation over next 6-12 months need to be anchored. Investors need to have a long term investment horizon
Source: Bloomberg
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Investment Strategy |
Source: Bloomberg
![]() | Volatile March month for markets globally |
Indian equities have been amongst the best performing markets since Jan 2020; 2022 CY YTD has been a volatile start for Indian and global indices
Key Highlights
➢ From pre pandemic levels of 1 Jan 20, Indian markets have outperformed most global markets. MSCI India is up ~48% as compared to MSCI Emerging Markets (~+8%; dragged down by Russia & China) and MSCI Europe (~+7%; due to the ongoing Russia-Ukraine war crisis)
Source: Bloomberg
Performances are as of 31st Mar, 2022
![]() | MFs continue to get strong flows with SIP collection contributing most of the flows |
Assets managed by the Indian mutual fund industry has increased from ₹ 32.4 trillion in April 2021 to ₹ 38.6 trillion in February 2022 with proportionate share of Equity schemes increasing from 42.4% to 48.2% with M.T.M movement contributing the most
SIP contribution in FY 2022 has crossed ₹ 1,00,000 cr with SIP transactions over ₹ 10,000cr for 6 consecutive months.
Source: AMFI
![]() | Rising Bond Yields driven by entrenched inflation |
Vaccination rates have plateaued in the most of the geographies
Bond yields both in the domestic and global markets inched higher on account of persistently higher inflation, geo-political uncertainties and expectation of faster interest rate hike cycle implemented by Federal Reserve
Source: Bloomberg
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Domestic macro indicators |
India's GDP grew 5.4% in Q3FY22 which was lower than expected estimates and is likely to grow at 8.9% in 2021-22.
Composite PMI came in at 53.5 in Feb 2022, and has remained above 50 in the last 6 months
GST collections in March was at record high at ₹ 1.42 lakh crs and it has been consistently been higher than ₹ 1.3 lakh crs for the past 6 months.
Selling pressure from FPIs in the secondary market in the last few months have resulted in net outflows
Source: Bloomberg, CDSL
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Domestic macro indicators |
Forex Reserves have seen a dip from 629 Bn USD to 617 Bn USD on account of surging oil prices
Feb CPI inflation was at an 8 month high level and has inched past RBIs target inflation level of 2% to 6%
Trade deficit jumped to $18.7 Bn in Feb 22 from $12.6 Bn a year ago primarily on account of rising crude oil prices
Lending and Term deposit rates have been in line but tad bit lower than FY 20 numbers
Source: Bloomberg, RBI, Ministry of Commerce
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Global recovery might get impacted due to ongoing geo-political tensions |
Global growth in FY 22 to be led by key geographies
Global economies have showed recovery however Covid surge along with rising inflation rates has impacted the recovery path
PMI numbers reflect global recovery post omicron led COVID wave
Global Negative-Yielding Debt has come down to USD 2.9 Trillion from USD 5.7 Trillion last month
Source: Bloomberg
*Feb 22 Composite PMI
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Other global macro indicators:- Liquidity, Dollar Index & Oil prices |
➢ Global liquidity has eventually began to normalize with tapering announcement by various Central Banks
➢ US Fed in the FOMC meeting had announced that it would ramp up the speed at which it pares its bond purchases, putting the nation's central bank on course to eliminate the emergency quantitative easing (QE) program a few months earlier than expected
➢ Federal Reserve and Bank of England had both resorted to interest rate hikes in the month of March.
Dollar Index has seen an increasing trend and has been at its strongest levels along with U S yields on investor concerns around Federal Reserve starting their withdrawal of policy support and hiking interest rates
Due to the geopolitical conflict, crude oil prices rallied with Brent crude touching 14 year high levels of $140 /bbl Crude oil prices have increased significantly over the past two months In FY 22 Brent crude oil futures moved from US$64 bbl to a high of ~US$140 /bbl
Source: Bloomberg
![]() | Indian markets bounced back from early March lows amid evolving geopolitical situation between Russia and Ukraine |
Benchmark, Factor Indices & Sectoral Performance
Equity MF Category wise Performance (in %)
Performances are as of 31st Mar, 2022
Source: Bloomberg
![]() | Globally equity markets continued to remain volatile amid the Russia - Ukraine conflict |
Developed Market Performance
Emerging Market Performance
Performances are as of 31st Mar, 2022
Source: Bloomberg
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Valuation at premium while yield gap, though increasing, is within historical range |
(1) The market is trading well above its long-term 12-month forward. The composition of the index has also changed in favor of high quality, higher P/E stocks in the past few years
(2) The yield gap (difference between bond and earnings yield) has increased with rise in bond yield
Nifty 50 Index valuation after witnessing some correction post scaling new highs is still at the top end of historical range
Performances are as of 31st Mar, 2022
Source: Bloomberg
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Markets, after recovering from recent lows, are still trading at premium in expectation of strong earnings growth |
Majority of the benchmark and sectoral indices are currently trading at premium to their historical averages, while some sectors which have seen some correction are trading at a discount to their historical averages
A broader market recovery has led to recovery in Market Cap to GDP
Earnings recovery is expected to continue into FY23
Performances are as of 31st Mar, 2022
Source: Bloomberg
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Global markets have seen some recovery but many of them trading still below their long term historical averages |
US and MSCI Developed market Index are trading at relatively higher premium compared to the European counterparts
Indian markets are trading at relatively higher premium compared to their peers historical averages
Performances are as of 31st Mar, 2022
Source: Bloomberg
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Key events to watch out for |
India
➢ RBI Monetary Policy
Global
➢Evolving situation of geopolitical conflict between Russia and Ukraine
Source: Bloomberg
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Key risks to the markets |
➢ Escalation of geopolitical tensions between Russia & Ukraine
➢ Sustained high crude oil and commodity prices could impact economy and earnings in some sectors
➢ Any negative surprise in Q4 FY 22 results
➢ Faster than expected policy tightening & stimulus withdrawal along with faster than expected interest rate hike by Global Central Banks
➢ Potential slowdown in Domestic Institutional buying in Indian markets who have till now been maintaining a balance in the market on the back of sell off seen from FII's in the last few months
Source: Bloomberg
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Recommended Equity Funds' Performances |
Source: MFI Explorer Returns are CAGR as on April 18, 2022 and for Regular Plans with Growth option. Corpus size is as on March, 2022.
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Recommended Equity Funds' Performances |
Source: MFI Explorer Returns are CAGR as on April 18, 2022 and for Regular Plans with Growth option. Corpus size is as on March, 2022.
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Recommended Hybrid Funds' Performances |
Source: MFI Explorer Returns are CAGR as on April 18, 2022 and for Regular Plans with Growth option. Corpus size is as on March, 2022.
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Fixed Income Market: The Month Gone By
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Source: Bloomberg, RBI
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Fixed Income Market:
Outlook
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Source: Bloomberg, RBI
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Domestic Micros
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Source: Bloomberg, PPAC, RBI, CEIC, SBIMF Research
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Fixed Income Market: Strategy
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Source: Bloomberg, RBI
▮ | Indicative Prevailing Yields Across Investment Options |
Source: Kotak bank website for Bank FDs, Others from NSE/BSE traded data
▮ | Recommended Debt Funds' Performances |
Source: MFI Explorer. Less than 1 year Simple Annualized returns, Greater than or Equal to 1 year Compound Annualized returns. Returns as on April 18th, 2022 and for Regular Plans with Growth option. Corpus size is as on March, 2022.
▮ | Disclaimer |
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