Market Outlook September 2021

Equities

The month of August was full of action where most of the indices moved up by 6% including the Midcap & Small-caps. Overall gain on the Nifty 500 for last one year reached 55.31%. Again, retail participation dominated the show, indicating huge appetite for equity from investors. Funds like ICICI Flexi-cap, SBI Balanced Advantage and UTI Focused Equity Fund garnered record money in their NFOs.
FIIs turned positive in the few sessions of August as India dedicated funds showed positive collection. Rally was on the back of improved fundamentals, opening up of the economy and pick up in the pace of vaccination. The Indian IPO market saw the highest ever garnering of numbers in the various IPOs that we saw in the last couple of months. Though FPIs sold Rs.7821 crores in the secondary market, but infused Rs. 8,189 crores in primary market, QIBs, & right issues.
The market is theoretically looking expensive on the back of trailing P/E valuation of close to 26 times. Even the market cap to GDP is reaching 120% & price to book of 4.30 times is an indicator of expensive valuation. This is true when you look at the numbers in isolation, but the important factors missing from this analogy are liquidity & expected high growth phase which the India economy is poised to enter. Q1 of 2022 has shown IIP growth of 20% & the opening of the economy along with lower number of infections – is looking positive for Indian Market. This is of course subject to not getting the third wave & trade becoming normal. Most of the consumption indicators show the economy reaching pre-covid levels.
Corporate performance is expected to be much better in Q2 than Q1 of FY 2021-22 as monsoons have been good, commodities & oil prices are expected to remain in the comfort zone. However, inflation is still playing a spoilsport as CPI is closer to 5.69% & WPI is around 11%. GST collection for August has been slightly below the figure for July 2021 & is expected to improve in the coming months. Factors which need improvements are credit offtake which is still below expectations at around 6% & capacity utilization which is around 70%. Usually when capacity utilization touches 80%, it triggers new capex plans which is important for the capital goods sector to pick up & in turn also support the credit growth in the economy.
Having said that, the recent rally in the market was broad based with almost all sectors except for Oil & Gas and Auto have participated. We don’t want to predict Nifty levels but looking at current structure, we don’t expect a big upset at this stage. You will still find 10 plus Nifty stocks which are yet to touch their 52 weeks highs & that indicates that this rally has more legs.

One can always expect profit booking after such a dream run but a 10% plus correction is not expected provided Covid remains under control. FPIs have invested a record of Rs.1.85 lac crore in the Indian market in last 12 months & with US Fed’s latest dovish stance on taper, we expect continued support from FPIs on long term.
Long-term investors should continue to stay invested as we feel one year from here market will be at a higher from the current level. As well know it is difficult to time the market as many investors are still waiting to enter since the 14000 level of Nifty. It will be prudent to bring your equity allocation to your acceptable levels from an excessive level rather than reducing drastically. One may move to a balanced strategy & new money could be strictly invested in a staggered manner from now onward. The equity allocation in most of the balanced funds was closer 30% (which is the minimum threshold limit) at the end of August 2021. This also indicates that on the valuation matrix, current levels are theoretically looking expensive. Equity markets operate within too many parameters & applying any thumb rule under the blue-sky environment is yet to be tested.
China Plus One strategy (i.e. also known simply as Plus One, is the business strategy to avoid investing only in China and diversify business into other countries) & robust hiring by technology companies coupled with a recovery in the real estate sector show a new ray of hope for the economic revival for long term in India. There is no point in ignoring equity as an asset class now. Easy money-making days are over & one needs to be very careful about choice of funds, PMS or stocks that you can buy now on. With the festive season starting and Covid cases falling will mean very good news for many sectors and this will lead to positive sentiment in the overall equity market going ahead.

Fixed Income

Post the meeting of the US Federal Reserve officials the debt market heaved a sigh of relief and the debt/equity market rallied as well. In India, the 10-year G-Sec went down from 6.27% to 6.18% on the back of the accommodative RBI policy.
Inflation is still running high with the CPI around 5.69% which is outside the RBI comfort zone. The RBI will continue supporting the economy which is slowly but steadily coming out of the woods. The IIP date, GDP data and the consumption numbers are showing improvement.
However, fuel consumption (especially diesel consumption) is yet to reach the pre-Covid levels. Credit pick-up is slow, and the employment statistics still have plenty of room for improvement. Liquidity is awash and rates are holding very steady as follows:
One can always expect profit booking after such a dream run but a 10% plus correction is not expected provided Covid remains under control. FPIs have invested a record of Rs.1.85 lac crore in the Indian market in last 12 months & with US Fed’s latest dovish stance on taper, we expect continued support from FPIs on long term.
Long-term investors should continue to stay invested as we feel one year from here market will be at a higher from the current level. As well know it is difficult to time the market as many investors are still waiting to enter since the 14000 level of Nifty. It will be prudent to bring your equity allocation to your acceptable levels from an excessive level rather than reducing drastically. One may move to a balanced strategy & new money could be strictly invested in a staggered manner from now onward. The equity allocation in most of the balanced funds was closer 30% (which is the minimum threshold limit) at the end of August 2021. This also indicates that on the valuation matrix, current levels are theoretically looking expensive. Equity markets operate within too many parameters & applying any thumb rule under the blue-sky environment is yet to be tested.
China Plus One strategy (i.e. also known simply as Plus One, is the business strategy to avoid investing only in China and diversify business into other countries) & robust hiring by technology companies coupled with a recovery in the real estate sector show a new ray of hope for the economic revival for long term in India. There is no point in ignoring equity as an asset class now. Easy money-making days are over & one needs to be very careful about choice of funds, PMS or stocks that you can buy now on. With the festive season starting and Covid cases falling will mean very good news for many sectors and this will lead to positive sentiment in the overall equity market going ahead

Sr. No. Particulars Rate
1 Call Rate 3%
2 Repo Rate 4%
3 One year CD 4%
4 One year CP 4.50%

The US 10 Year bond also came down to 1.30% from the high of 1.70% in the last two months. Rupee improved to 73.50 against the USD and can be seen appreciating with some recent flow of money in debt and equity markets from FPIs.
We still believe if central bankers are slowly preparing the market for a taper, it is better for slow hardening of the yields. The impact can be better digested by the market with this pace of taper. We still feel that short term and medium-term funds offer better risk adjusted returns over any duration strategy. The 5 years (AAA) paper offer better risk adjusted returns over overnight or 1-year papers. One may also thing of targeted G- Sec paper if one is conscious about the quality and SDL plus floater could also offer better trade off at this stage in the debt market.
REITs and InvITs may be looked at as an alternative to debt investing at the current juncture. With improved fundamentals, the reduction in debt of corporates, and the improving economic conditions we feel that India may see more upgrades in the coming days. This gives more comfort in investing in debt products with dash of credit at appropriate points in time.

Happy to discuss further!

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. Any calculations made are approximations and are for illustrative purposes based on assumed figures, meant as guidelines only, which you must confirm before relying on them. The statements herein are based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. This message (including any attachments) is solely for the addressee(s) and may contain confidential information. If you have received this document in error, please destroy and notify sender immediately. Sender does not intend to waive confidentiality or privilege. If you have received this document in error and / or are not the intended recipient, you are notified that reading, using, copying, printing, forwarding or distributing of this email is strictly prohibited. Pranitya Wealth LLP is registered as a Mutual Fund Distributor with ARN No. 169520 with the Association of Mutual Funds of India (‘AMFI’) and does not intend to provide any investment advice as defined in SEBI (Investment Advisor) Regulations 2013 vide this document

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