After having a really robust yr for the reason that Diwali 2020, we entered Samvat 2078 (Diwali 2021) on a somewhat cautious notice. The tailwinds of straightforward cash, supportive fiscal insurance policies, decrease borrowing value, and demand recovering from a pandemic led collapse had been starting to wane. The chance supplied by the panic-led crash after the outbreak of COVID-19 had already been absolutely exploited by the good traders. The valuation consolation was additionally lacking, because the benchmark indices had been at an all-time excessive, with out a lot enchancment within the company profitability.
The benchmark fairness indices are presently buying and selling marginally decrease (-3 p.c) as in comparison with the Diwali 2021 day. The bond yields have additionally risen sharply throughout the previous one yr, implying poor return within the debt portfolio as properly. If we take into account the persistently excessive inflation, the actual portfolio returns have been largely detrimental in Samvat 2078. Clearly it has been fairly a difficult yr for Indian traders.
With USD-INR depreciating over 11 p.c previously one yr, Nifty50 fell greater than 13 p.c in USD phrases. The returns for the overseas traders are, due to this fact, even worse. They’ve offered greater than Rs 2 trillion-worth of Indian securities (fairness and debt) previously one yr.
We could draw consolation from the truth that Indian markets outperformed the US, China, and many of the Euro space; although friends like Brazil, and Indonesia did much better than us.
Now as we enter Samvat 2079, the custom instructions that we make an auspicious starting on an optimistic and optimistic notice. However circumstances are compelling me to be extraordinarily cautious in my outlook for the following 12 months.
Many developed economies are dealing with the spectre of recession pushing the worldwide economic system into recession-like situations. The geopolitical state of affairs stays tense with indicators of additional intensification because the onset of winter worsens the European vitality disaster. The weaponisation of currencies to complement the geopolitical conflicts, and commerce disagreements between China and the West would possibly proceed to trigger collateral harm to rising markets nonetheless largely reliant on the USD for commerce and financing. With La Nina situations probably prevailing within the early a part of CY2023, and OPEC+ pursuing a path of confrontation with the West, vitality and meals inflation could keep elevated, warranting tighter financial situations.
The home macroeconomic situations are steady for now; however positively beneath par stage, diminishing the possibilities for any significant fiscal and financial assist in case the worldwide situations worsen materially. Tighter world financial situations would possibly proceed exerting strain on the INR and bond yields for higher a part of the following yr.
The macro stability would possibly, thus, face a number of headwinds in Samvat 2079 with inflation persisting above the RBI’s consolation zone; present account and monetary deficit underneath strain and political decision-making pushed by the 2024 normal elections in thoughts.
On this backdrop, I estimate that the Indian markets could proceed to hold a detrimental bias for many a part of the following one yr; although we might even see some sharp technical rallies that will probably be largely offered into.
Having stated this, I need to say that the following one yr shall additionally current quite a few alternatives for the traders who’re prepared to look past Samvat 2079. These alternatives could are available in two segments of the markets: One, some firms could witness irrational detrimental worth motion resulting from general detrimental market sentiment, and provide a beautiful entry level to traders who’re prepared to just accept short-term mart to market losses for larger-than-normal income within the mid- to long-term; and, Two, the altering world market dynamics, rising applied sciences, and vital modifications in home coverage surroundings could create main alternatives for some Indian firms, as we had seen throughout the late Nineteen Nineties for Indian expertise firms and infra builders.
I due to this fact recommend a three-pronged technique for Samvat 2079:
Keep defensive until the darkish clouds of uncertainty start to blow over. Keep away from leverage of any variety. Restructure portfolios to obese debt-free firms with robust money movement visibility, pricing energy, and decrease elasticity of demand for his or her product and companies. In debt, want short-term debt with no or little length and credit score threat.
Keep always on the look-out for brand spanking new alternatives. Nonetheless, it’s advisable to not bounce immediately on the primary sight of the chance. Miss the primary 100-200 p.c of positive aspects out of the potential 1,000-2,000 p.c.
Keep true to your decided asset allocation in accordance with the long-term funding goals. Don’t let the forces of greed and energy to disproportionately have an effect on your financial behaviour.