Creating a bigger impact!

chief investment officer
Dr. Poonam Tandon
Chief Investment Officer

Market Matters August 2023

Indian equity market indices declined amid muted global cues on account of hardening global bond yields, weaker Chinese economic data and decelerating foreign inflows. Indian fixed income markets remained flat in a range bound trade tracking global bond yield movement.  

Global equity markets declined amidst rise in market volatility on the back of weak Chinese macroeconomic data and in the backdrop of news flow of stress in the Chinese real estate market. Sovereign bond yields witnessed hardening trends as major global central banks, at the annual Jackson Hole symposium, re-iterated their stance of restricted monetary policy for longer to contain inflation. Commodity prices were flat led by Crude oil even as gas prices rose sharply. Domestically, RBI minutes indicated that it could act if food inflation spreads to core inflation. Monetary policy focus remains on aligning inflation with target. Monsoon progress slowed. Inflation rose but PMI and IIP growth were resilient. GST collections remained steady.   

Global economic activity remains resilient despite mounting challenges. Core inflation remains stubbornly high. Global central banks continue to prioritize inflation fight, as highlighted in their annual Jackson Hole symposium, over supporting economic growth. High and sticky core inflation and labour market strength supports the hawkish monetary policy narrative of central banks. However, central bankers would have to increasingly maintain a balancing act between supporting growth and taming inflation. Moreover, cumulative fallout of an unprecedented rate hike cycle of global central banks has raised the contagion risk due to collapse of US banks in quick succession. Prolonged Russia-Ukraine military conflict has compounded global uncertainties as supply disruptions have further exacerbated inflationary pressures. Domestically, RBI has been in pause mode for last three monetary policy meetings. Food inflation trends would be monitored. Relatively resilient domestic economy and a stable rupee has restored much needed confidence among foreign investors.

In the near term, monsoon progress & sowing progress, food prices & inflation trajectory, key global central bank monetary policy actions, direction of institutional flows, geopolitical tensions, currency and commodity price movement and global bond yields would be monitored.   

Global macro volatility would remain high in the backdrop of rising commodity prices, high and sticky core inflation, prolonged geopolitical tensions, tight monetary policy stance of major global central banks and the associated risks to economic growth projections. Our broad approach remains stock specific with preference for companies that can navigate this turbulent macro environment with ability to maintain margins backed by a healthy balance sheet. Market corrections can provide opportunities to accumulate quality stocks. Steady rupee, stable Forex and external balance are positives. However, tepid monsoon activity, slowing tax revenues, heavy supply in both GSec and Corporate Bonds in Q2 and emerging crude trajectory, inflation and liquidity conditions need to be monitored. Considering these factors, scope of further RBI rate action could be limited. However, there could be a rise in volatility in benchmark bond yield movement.   

Disclaimer: Linked Insurance Products are different from the traditional insurance products and are subject to risk factors. The Premium paid in unit-linked life insurance policies are subject to investment risks associated with capital markets and NAVs of the units may go up or down, based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. IndiaFirst Life Insurance Company Limited is only name of the Insurance Company and does not in any way indicate the quality of the contract, its future prospects, or returns. Please know the associated risks and the applicable charges from your Insurance Agent or the Intermediary or policy document issued by the Insurance Company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns. Past performance may or may not be sustained in future and is not a guarantee of future performance. Some of the contents of this document may contain statements / estimates / expectations / predictions, which may be 'forward looking'. The actual outcomes could differ materially from those expressed /implied in this document.These statements, do not intend to provide personal recommendation to any specific individual or any investment needs of an individual. The recommendations / statements / estimates / expectations / predictions are of general in nature and may not take into account the specific investment needs or risk appetite or financial situations of individual policyholder / clients. For more details on risk factors and terms and conditions, please read the sales brochure carefully before concluding the sale. Tax benefits are subject to changes in the tax laws.