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chief investment officer
Poonam Tandon
Chief Investment Officer

Market Matters August 2022

The month saw the Indian equity market indices rising further for the second consecutive month helped by foreign institutional inflows even as global macros remained weak largely on the back of US Fed’s hawkish commentary. Indian fixed income markets again saw decline in yields tracking lower crude and optimism on potential inclusion in global bond indices. INR depreciated further against the USD.   

Globally, equity markets fell after the US Fed reiterated its commitment to a long-term inflation goal at the Jackson Hole symposium. Commodities rose led by gas prices. US CPI growth slowed to 8.5 percent but remains among the highest in four decades. Core inflation remained above the US Fed’s target. ECB effected a historic rate hike moving aggressively to combat record inflation. Bank of England followed suit to tackle multi-decade high inflation. Domestically, the RBI MPC hiked repo rates further with stance of withdrawal of accommodation. Monsoon progressed well with improved spatial distribution. India’s trade deficit remained. GST collections remained healthy whereas retail and wholesale inflation moderated. Industrial activity surged. 5G spectrum auctions were successfully concluded.  

Global inflation print has scaled to its highest level since the 1980’s whereas growth momentum has slowed. Russia-Ukraine military conflict has compounded global uncertainties as risk of further supply disruptions have exacerbated inflationary pressures. Global monetary policy trajectory has seen a major shift with interest rates expected to rise higher by calendar year-end even from the current decadal high levels. However, central bankers would have to increasingly maintain a balancing act between supporting economic growth and taming inflation. Domestically, the government’s recent actions with respect to duties and cesses are largely aimed at curbing inflation, reining in the current account deficit and reducing fiscal slippages. Even the RBI MPC remains focused on withdrawal of accommodation to ensure that inflation remains within target going ahead.

In the near term, monsoon progress, inflation outlook & key global central bank monetary policy actions, institutional flows, any rise in geopolitical tensions, commodity price trends, COVID-19 vaccine / booster coverage and trajectory of reopening of economies would be monitored.   

In the backdrop of concerns on account of energy crisis in Europe and risks to the economic growth outlook amid elevated inflation, our broad approach remains stock specific with preference for companies that can navigate this turbulent macro environment with pricing power and margin sustenance backed by a healthy balance sheet. India equity markets continue to outperform key global markets amid multiple challenges. Market corrections can provide opportunities to accumulate quality stocks. Further tightening, depreciating currency and additional borrowing are concerns but easing crude / commodity prices offers respite. Outcome of review for India’s global bond indices inclusion would be eyed. Taking note of the above factors, we expect a gradual and limited incremental rise in yields in the medium term.

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