सिद्धि बुद्धि प्रदे देवि भुक्ति मुक्ति प्रदायिनि।
मन्त्र मूर्ते सदा देवि महालक्ष्मि नमोस्तुते ॥
(We devoutly surrender and offer our humble salutations to Sri Maha Lakshmi – giver of intelligence, wisdom; prosperity and liberation. To the eternal goddess who incarnates in these mantras)
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It’s Diwali time again. Through various shows on business channels, annual outlook is shared about the Indian economy and markets. Invariably, almost all of them speak in one language – the language of hope and optimism. A variety of investment and trading ideas are also shared with the viewers, primarily for one year investment horizon. Insofar, it is customary and done in the festive spirit, it is a welcome practice; more so this year when the mood is somber.
There is little doubt that Samvat 2078 has been a tough year for Indian and global markets, due to numerous macroeconomic factors including the minor impact of Covid third wave during the first half of 2078. Factors like high inflation globally and central banks’ monetary tightening policies in order to curb the same and unexpected geopolitical turmoil on account of Russia-Ukraine conflict, led to sharp sell-off across equity markets. Moreover, FII out-flow, currency depreciation and supply chain disruptions, impacted the economy and corporate performance despite commodity softening.
India emerged as a shining star through Samvat 2078, and strengthened its position in the global economy despite multiple headwinds like – high inflation, rising interest rates, currency swings, geopolitics uncertainties and the onslaught of FII selling. Despite the huge volatility, Nifty since last Diwali lost a marginal ~3% as compared to 20-35% fall in most of the global indices. Nifty Midcap index remained resilient with fall of just -2% but Nifty Smallcap index faced the major brunt with a fall of -12%.
India is today looking like a pearl in the ocean with benefits from food security, domestic demand driven economy, PLI scheme across manufacturing and defence and strong banking system with decade low NPAs. Even as high inflation has impacted demand in lower and lower middle sections, festive demand is buoyant with little Covid impact, good monsoons, pick up in Real Estate development, Boost in employment and strong hiring demand across sectors.
However,history suggests that whenever a global major event has occcured, our economic growth slowed down; corporate and financial stress increased; stock markets corrected; risk premiums on our bonds rose sharply; and investors panicked and incurred huge losses, in each of these instances. A similar pattern repeating this time cannot be completely ruled out!
Entering into Samvat 2079, we expect markets to remain under pressure and witness more volatility in the near term on account of deterioration in global macros and uncertainties prevailing in western economies. Many developed economies are facing the specter of recession-like conditions. The geopolitical situation remains tense with signs of further intensification as onset of winter worsens the European energy crisis.
The weaponization of currencies to supplement the geopolitical conflicts and trade disagreements between China and the west might continue to cause collateral damage to emerging markets still mostly reliant on USD for trade and financing. With La Nina conditions likely prevailing in the early part of CY2023 and OPEC+ pursuing a path of confrontation with the west, energy and food inflation may stay elevated, warranting tighter monetary conditions.
It is true that these periods of turbulence usually throw brilliant opportunities. But to avail these opportunities one needs to survive till the peace is fully restored. A few brave men will take their chances claiming to be the opportunity of a lifetime; but we will avoid adventure of any kind and try to survive this period of reset. If we are able to do so, returns are likely to come!
These opportunities may come in two segments of the markets –
(1) Some companies may witness irrational negative price action due to overall negative market sentiment and offer an attractive entry point to investors who are willing to accept short term mark to market losses for larger than normal profits in the mid to long term
(2) The changing global market dynamics, emerging technologies and significant changes in domestic policy environment may create major opportunities for some Indian companies, as we had seen during late 1990s for Indian technology companies and infra builders in 2008 cycle.
Wish all our clients, subscribers and readers a joyous Diwali. May the new Samvat be propitious for everyone – full of peace, prosperity and pleasures!