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chief investment officer
Dr. Poonam Tandon
Chief Investment Officer

Market Matters November 2022

Indian equity market indices rose sharply during the month despite the challenging economic backdrop and elevated geopolitical risks amid expectations of moderating interest rate hikes and relatively mild EU recession which buoyed market sentiments. Indian fixed income markets witnessed volatile trade tracking global cues and the emerging domestic liquidity and demand conditions. INR remained under pressure as it depreciated further against the USD.   

Global equity markets recovered on continued easing of global supply chain constraints and tempering European energy crisis which could mitigate the risk of a harsh recession. Rate hikes continued across the world with the US Fed, the ECB & the Bank of England further raising key interest rates by 75 bps each to tame inflation. Rishi Sunak was appointed as the new PM of the UK. New UK government also reversed many of the previous government’s tax cuts. China’s COVID-19 related disruptions continued. Domestically, the RBI MPC September meeting minutes indicated seemingly opposing views over further course of rate hikes. E-way bills generated during the month were the highest ever. GST collections rose to second highest ever whereas retail inflation hardened further. Industrial activity contracted.  

Global inflation print has scaled to its highest level since the 1980’s whereas economic growth momentum has moderated. Russia-Ukraine military conflict has compounded global uncertainties as supply disruptions have further exacerbated inflationary pressures. Global monetary policy trajectory has seen a major shift with inflation fight being prioritised over growth and interest rates are expected to rise higher by calendar year-end even from the current decadal levels. However, central bankers would have to increasingly maintain a balancing act between supporting growth and taming inflation. Domestically, further rate hikes and liquidity withdrawal measures could continue to anchor inflation expectations but terminal rates could be around the corner. Government’s actions with respect to duties and cesses are also aimed at curbing inflation and reining in the current account deficit and reducing fiscal slippages. Moderation in global commodity prices augurs well for the medium-term outlook.  

In the near term, inflation outlook & key global central bank monetary policy actions, geopolitical tensions, direction of institutional flows, commodity price trends, global bond yields and currency moves and trajectory of reopening of economies would be observed.   

In the backdrop of elevated macro uncertainties on account of risks to economic growth outlook amid elevated inflation, 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. Indian equity markets have outperformed key emerging markets during the month. Market corrections can provide opportunities to accumulate quality stocks. Further monetary tightening, depreciating currency and emerging liquidity conditions are concerns which could lead to a rise in yields in the medium term.

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