Creating a bigger impact!

chief investment officer
Poonam Tandon
Chief Investment Officer

Market Matters April 2022

The month saw the Indian equity market indices declining on worries surrounding rise in COVID-19 cases in China, continued Russia-Ukraine military conflict, high inflation, rising bond yields and potentially faster interest rate hikes. Domestically, the RBI MPC, in a surprise move, hiked policy rates to anchor inflationary expectations resulting in hardening of yields. Globally, US Fed raised benchmark policy rates.        

Global equities declined on unfavorable macros with the World Bank and IMF cutting their global economic growth forecasts for CY22. Commodity markets led by energy remained in focus as the EU mulled ban on Russian oil imports. US headline CPI remained elevated as the US Fed moved in with the most aggressive rate hike since 2000 with the announcement that will start reducing its large $9 trillion balance sheet. US Labour market remained buoyant. US Dollar remained strong. Domestically, the RBI MPC hiked the repo rate and CRR unexpectedly to counter rising inflation and drain out excess liquidity as heightened geo-political tensions and high crude oil prices, among other things, could have a spill over impact on the Indian economy. Skymet expects the southwest monsoons to be 'normal'. GST collections came at fresh all-time highs whereas retail / wholesale inflation hardened further. Industrial activity and PMI climbed marginally. 

Breakout of military conflict in Eastern Europe increases global uncertainties as commodity prices could remain elevated which could exacerbate existing inflationary pressures due to earlier announced record fiscal stimulus which had spurred demand in the back drop of constrained supply chains. Although central banks have embarked on a rate hiking cycle, it remains to be seen whether going ahead central banks try to be more supportive of economic growth by reducing the pace of their tightening program or combat higher inflation by increasing the magnitude of rate hikes.

As anticipated earlier, Commodities, Metals, Utilities, PSU’s, Real Estate / Infra, Cap goods, Auto, Cement etc. are emerging as market leaders with a favourable tilt in investor sentiment as sector and style rotation plays out. Value - oriented stocks are registering outperformance. On the fixed income side, the unexpected hawkish RBI Policy stance amid worsening macros and a lack of G-sec supply in the month and rising investor demand kept yield rise under check.

In the near term, inflation outlook & key global central bank monetary policy stance, ongoing geopolitical tensions, corporate earnings season, commodity prices, COVID-19 vaccine / booster coverage and trajectory of reopening of economies would be monitored. 

Therefore, there is potential for further equity market volatility in the short-term. Our broad approach would be to remain stock specific with preference for quality companies that can display pricing power and maintain strong margins. Surging crude / commodity prices, hardening inflation outlook, further monetary tightening and large supply in the coming months could put upward pressure on yields across the curve.

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