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MONTHLY MARKET UPDATE & OUTLOOK – MAY’23

India transformed in less than a decade; different from 2013: Morgan Stanley

This India is different from what it was in 2013. In a short span of 10 years, India has gained positions in the world order with significant positive consequences for the macro and market outlook, Morgan Stanley said in a report.

 

Ten big changes, mostly because of India’s policy choices, and their implications for its economy and market were highlighted in the report:

 

  1. Supply-side Policy Reforms: Infrastructure has picked up & corporate tax at par with peer countries;

  2. Formalisation of the economy: GST collection on an upward trend & digital transactions as % of GDP at record high;

  3. Real Estate (Regulation and Development) Act;

  4. Digitalizing Social Transfers;

  5. Insolvency and Bankruptcy Code;

  6. Flexible Inflation Targeting;

  7. Focus on FDI;

  8. India’s 401(k) Moment: SIP, NPS and EPF investment in equities at record high;

  9. Government Support for Corporate Profits;

  10. MNC Sentiment at Multiyear High: India’s service export market share accelerates.

The ten macroeconomic and stock market implications of the aforesaid changes:

  1. Manufacturing and capex as % of GDP to increase steadily: the share of both to rise in GDP by approximately 5ppt by 2032;

  2. Export market share to double: Export market share will rise to 4.5% by 2031, nearly 2x from 2021 levels;

  3. Major shift in consumption basket: As India’s per capita income increases from US$2,200 currently to about US$5,200 by F2032, this will have major implications for change in the consumption basket, with an impetus to discretionary consumption;

  4. Lower volatility in inflation and shallower interest rate cycles: Shallower rate cycles could also imply more benign equity market cycles;

  5. Benign trend in current account deficit

  6. A profit boom: The share of profits in GDP has doubled from all-time lows hit in 2020 and are set to rise further – maybe even double from here – leading to strong absolute and relative earnings. This explains India’s apparently rich headline equity valuations.

  7. Lower correlation with oil prices: Lower share of foreign portfolio (FPI) in current account funding has reduced the stock market’s negative return correlation with oil prices, especially when oil prices rise due to supply disruption.

  8. Lower correlation with US recession: As India’s reliance on global capital market flows has reduced, the market’s sensitivity to a US recession and US Fed rate changes also seems to be fading.

  9. Valuation re-rating: This reflects persistent domestic demand for stocks and higher growth for longer. India is trading at a premium to long-term history, albeit well off highs and in line with recent history.

  10. India’s beta to EM has fallen to 0.6: This is a consequence of improved macro stability and reduction in dependence on global capital market flows to fund the CAD.

Credits: Brian Feroldi

Quote of the month

You cannot sow something today and reap tomorrow! A seed has to go through the various seasons before it turns into a fully grown tree. So is the case with investing

 

-Parag Parikh

From the global leaders:

 

Indian macro dataflow remained strong:

 

  • Manufacturing PMI: Manufacturing PMI at 31-month high of 58.7 in May on robust demand for new orders and remained in expansion zone (>50 points) for the 23rd straight month;

  • Services PMI: The Indian services PMI declined to 61.2 in May after reaching a 13 year high of 62 in April 2023. It remained in expansion zone (>50 points) for the 22nd straight month;

  • GST Collection: Gross GST collection for May 2023 stood at Rs. 1.57 lakh crore as against Rs. 1.41 lakh crore for May 2022, registering a growth of 12%;

  • Credit growth: Credit growth reached 15.42% YoY as of 19th May 2023 against YoY growth of 11.14% as observed on 20th May 2022;

  • Inflation: India’s retail inflation eases to more than 2-year low of 4.25% in May;

  • Forex: India’s foreign exchange reserves stood at $595.1 billion as of June 2.

Equity:

 

  • SENSEX grew by 2.5% in May.

  • BSE Mid-cap and small-cap indices outperformed large-cap indices and were up 6.3% and 5.6%, respectively

  • Sector-wise, all but two sectors ended in green, namely metals (-2.9%) and oil & gas (-1.6%). Auto (+7.9%), Realty (+7.7%) and IT (+6.7%) indices were the largest gainers.

  • Among the top gainers globally were Japan (+7.0%), Taiwan (+6.4%) and Brazil (+3.9%). Meanwhile, Hong Kong (-8.3%), the UK (-5.4%) and France (-5.2%) were the most affected;

  • FIIs (Foreign Institutional Investors) continued to be net buyers of Indian equities in May (+Rs. 38,093 crore);

  • Mutual fund SIP flows hit new high of Rs. 14,749 crore in May.

Fixed income:

 

  • The US Federal Reserve in its May-23 policy meet, raised the Fed Funds Rate by 25 basis points to 5%-5.25%;

  • The European Central Bank raised its key interest rates by 25 basis points during its May meeting;

  • The Bank of England raised the bank rate by 25 basis points to 4.5% at its May policy meet;

  • 10 year G-Sec rallied to sub 7% as as the US yields dropped sharply post FOMC meet wherein Fed signalled a likely end to the rate hiking cycle. 10-year

    benchmark traded in a range of 6.95%-7.13% during the month;

  • System liquidity remained in surplus with average monthly liquidity coming down to Rs. 72,594 crores surplus vs a surplus of Rs. 1,53,205 crores in the month of April.

Outlook:

 

  • Post March-2023, equity valuations have moved higher due to renewed interest from FIIs. India’s strong macro-economic situation has led to positive overall sentiments.

  • We are in a neutral situation where equities cannot be avoided due to strong macros, nor it is recommended to be overweight on equities, due to valuations.

  • The Union Budget’s focus on higher Capital Expenditure by the Centre & States; push for consumption through lower taxes and goal of fiscal consolidation, together underpin India’s growth.

  • Companies have started deploying the excess profit, as evidenced by the increase in ordering activity – a precursor to increase in private Capex. We should see an investment driven economic growth starting FY24E.

  • We expect that strong demand scenario (domestic and international businesses), softening raw material inflation, easing global supply chains, eventual pick up in rural income as rural economy responds to increasing government infrastructure spends and benefits from improved crop prices and sharp surge in consumption spending due to wedding season should help achieve broad based domestic growth in coming quarters. Hence, we are overweight on domestic demand related sectors as growth and earnings certainties may be higher in related segments

Disclaimer: The views expressed herein constitute only the opinions/ facts and do not constitute any guidelines or recommendations on any course of action to be followed by the reader. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers

 

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Monthly market update & outlook – March’23

Bombay plan 1944: Cognizant of the gaps post independence and the need to broad base industrial growth in India, a group of industrialists comprising JRD Tata, Ghanshyam Das Birla, Sir Purshotamdas Thakurdas, among others, banded together to imagine what independent India’s economy would look like. They published a plan for economic development for India, commonly known as the Bombay Plan, 1944:

 

  • It agreed on the need for rapid industrialization and central planning;

  • It saw an expanded role for India in global trade;

  • It saw support from government for development of private sector, rather than control;

  • It envisaged a doubling of India’s per capita income within 15 years;

  • It called for creating industries for the production of power & capital goods;

  • It targeted doubling of share of industry in economy from 17% to 35%.

 

However, the Congress appointed National Planning Committee (NPC) wanted government ownership of industry. The Bombay Plan, 1944 was an early example of private sector led efforts to design an economic roadmap for India but it did not pan out as expected because of differences with National Planning Committee.

 

Source: Amitabh Kant authored Made In India

Quote of the month

The real way to build wealth in the long run, is to find a limited number of things with a lot of potential, and not too much risk, and stay with them for the long term.

 

-Howard Marks

In the long run, GDP, corporate profits and stock market (Nifty) moves in line. As of today, we are a $3 trillion economy. As per estimates, India will reach $30 trillion economy by 2047 – Stock market may also touch new highs in the times to come (but with volatility).

From the global leaders:

 

Indian macro dataflow remained strong:

  • Manufacturing PMI: Manufacturing PMI rises to three month high of 56.4 in March and remained in expansion zone (>50 points) for the 21st straight month;

  • Services PMI: Services PMI slowed to 57.8 in March after a 12-year high in February but remained in expansion zone (>50 points) for the 20th straight month;

  • GST Collection: Collections of Rs. 1.6 lac crores in March was second highest collection ever;

  • Credit growth: Driven by strong demand for personal loans, NBFC growth and liquidity crunch, credit offtake grew by 15 per cent YoY in March. With this, India witnessed the sharpest rise in borrowings in last eleven years;

  • Inflation: March CPI inflation seen at 15-month low of 5.7%;

  • Forex: India’s foreign exchange reserves stood at $578 billion as of March 31;

  • GDP: Basis latest estimates, GDP likely to grow at 7% in FY23;

  • Trade Deficit: narrowed in February to USD 17.4 Bn as compared to USD 17.7 Bn in Jan.

Equities:

  • Domestic equity markets remained flat in the month of March with Nifty ending with a marginal gain of 0.3%;

  • Smallcap 250 and Midcap 150 index marginally underperformed Nifty;

  • FPIs bought Rs. 12,578 cr. of Indian equities in the month of March;

  • Mutual Funds SIP inflows remain in elevated zone at Rs. 13,000 cr.+ for the month of March reflecting the strong belief of Indian investors in equities.

  • The Indian equities have witnessed a time correction in the last one year (Increase in corporate profits leading to fall in valuations without any major fall in prices). Fund managers across industry have started to increase exposure to equities.

     

Fixed income:

  • RBI did not hike repo rate in the month of March;

  • The 10Y G-Sec crashed from high of 7.46 to 7.219 as of April 12, 2023;

  • The current curve remains very flat with everything in corporate bonds beyond 1 year up to 15 years is available @7.-7.65% range.

  • Despite high interest rates, there is high liquidity crunch in the system. Average systemic liquidity deficit stood at Rs. 31 Bn in March 2023 as compared to a deficit of Rs. 58 Bn in February 2023.

     

Outlook:

  • The broad indices have not corrected as much as individual stocks. The Nifty 500 barely moved on a 6 month basis even though nearly 45% stocks have corrected by more than 10%. There are many unknowns ahead such as monsoons and oil prices yet we trust the resilience of the Indian economy and believe that a SIP into a diversified fund such as our Midcap, Flexicap, Smallcap

    will be the best way to ride out these uncertainties.

     

  • Growth stocks have taken a hit after rise in interest rates. Since, RBI is near the peak of interest rate cycle, we expect the growth stocks to outperform in the next three-five year period after the rate cut cycle starts. Depending upon the risk profile, one may take exposure to mutual funds investing in growth stocks in a staggered manner of nine months.

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Monthly market update & outlook – April’23

Rs. 200 crore inheritance

  • In 2017, a person called Zee Business to enquire about the value of a few share certificates purchased by his grandfather around 1993.

  • To everyone’s surprise, the company was MRF (Madras Rubber Factory – a tyre manufacturer incorporated in 1960) & his grandfather held 20,000 shares purchased for Rs. 2 lacs in 1993.

  • In 2017, the shares were valued at around Rs.130 cr. (the price of one MRF share was Rs. 65,000). At current market price of Rs. 99,200, the shares must be valued around Rs. 200 cr. – excluding dividends. MRF is the first Indian share to cross Rs. 1 lac mark in futures.

  • The per annum return on the investment stands at 36% (excluding dividends).

The returns may sound very astonishing but key takeaways from this:

  • Power of patience: In today’s time when most investors check their portfolio’s return multiple times a day, it’s indeed a tough task to hold a company’s share or a mutual fund for 30 years. For 10 long years, from 1999 to 2009, MRF was trading around 1500 i.e. 0 returns. Most of the MRF investors must have exited the share during this phase – only to regret today when it crossed 1 lac recently.

  • No gain without pain: In the short run, the market could fluctuate but in the long run, the market works on fundamentals and good companies tend to reward their shareholders. On multiple occasions, MRF also corrected by more than 50% yet it has delivered close to 35% per annum return since IPO (1993).

  • Power of compounding is one of the most powerful yet underestimated force in this world. 35% compounded annually for 30 years is not 1050% (35% X 30 years) but 901,918%. Very few understand this.

Quote of the month

Owning stocks has continued to be twice as rewarding as owning bonds. Acting on this bit of information will be far more lucrative in the long run than acting on the opinion of 200 commentators & advisory services that are predicting the coming depression.

 

-Peter Lynch

From the global leaders:

 

Indian macro dataflow remained strong:

  • Manufacturing PMI: Manufacturing PMI at 4 month high in April on robust demand for new orders and remained in expansion zone (>50 points) for the 22nd straight month;

  • Services PMI: The Indian services PMI jumped to 62, reaching a 13 year high in April 2023. It remained in expansion zone (>50 points) for the 21st straight month;

  • GST Collection: Collections of Rs. 1.87 lac crores in April was the highest collection ever;

  • Credit growth: Scheduled commercial banks (SCBs) reported a robust credit growth of 15.4% in FY23 compared to 9.7% in FY22. With this, India witnessed the sharpest rise in borrowings in the last eleven years;

  • Inflation: WPI inflation eases to 29 month low of 1.34% in March;

  • Forex: India’s foreign exchange reserves stood at $588.8 billion as of April 28.

Equities:

 

  • The Nifty Index gained 4.1% in April;

  • Mid-cap and small-cap indices outperformed large-cap indices and were up 6.0% and 7.5%, respectively;

  • Sector-wise, all sectors ended positive, except IT;

  • Globally, India was the best performing market in April, followed by Russia (+4%), UK (+3%) and Japan (+3%);

  • FIIs continued to BUY aggressively in April’23, with net buying of INR 9,792 cr.;

  • Mutual Funds SIPs touched Rs. 14,000 cr. for the first time reflecting the strong belief of Indian investors in equities.

 
 

Fixed income:

  • The MPC kept the repo rate on April 6, 2023 unchanged to 6.50% in a unanimous decision surprising the market which were expecting a further 25bp hike;

  • The 10Y G-Sec crashed from high of 7.46 to 7.046 as of May 10, 2023;

  • The current curve remains very flat with everything in corporate bonds beyond 1 year up to 15 years is available @7-7.65% range.

  • System liquidity remained in surplus with average monthly liquidity rising to Rs.1,53,205 crores surplus vs a deficit of Rs. 1,271 crores in the month of March.

 

Outlook:

  • While geopolitical issues still persist (Russia-Ukraine conflict, US-China trade war, Taiwan Political status etc.) the global supply chains have seen tremendous improvement in the recent months. During March’23, commodity prices have been slightly volatile (at lower levels) and most of the base metal prices have seen some moderation in recent months. Brent currently stands at $72/barrel and has fallen by 25% over the past 6 months (down 15% over past one month). Lower commodity prices should give some room for inflation control and may give respite to concerns on global inflationary trends.

     

  • While things are evolving on the global front, for Indian economy on a relative term there are more positives than negatives. On the domestic front, the key indicators continue to remain encouraging. Strong CV sales growth, stable GST and income tax collections, robust commentary from the manufacturing sectors, steady pickup in the credit growth to pre covid levels, stable exports growth and strong consumer spending are the key positive indicators.

     

  • Companies have started deploying the excess profit, as evidenced by the increase in ordering activity – a precursor to increase in private Capex.

     

  • Overall, despite the near-term recessionary concerns, over the medium to long term, Indian equity market looks to be on a strong footing. The current ongoing geo-political events may pose a risk to equities in the near-term, however, we continue to be bullish on India’s long term growth story.

 
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Monthly market update & outlook – February’23

India – Coming of age – A report by Government of India’s Invest India:

  • India received $950 billion FDI since 1947, of which $532 billion FDI came in the last 90 months,

  • India added a unicorn every 9 days in 2022,

  • From the start of 2015, India’s GDP rank jumped from 10th to 5th,

  • 2/3th of India’s GDP is driven only by domestic demand,

  • 2nd largest working population of 522 million with median age of 29 years,

  • Services GDP to grow 13X to $20 trillion by 2047,

  • Manufacturing GDP to grow 15X to $6.2 trillion by 2047,

  • Per capita income to grow 10X to $20,000 by 2047,

 

9,000 days from now, India will celebrate the 100th year of independence & India’s per capita GDP will be $20,040 (BCG report). Now multiply that by 1.6 billion Indians. $32 Trillion economy – Deepak Bagla, MD & CEO – Invest India. Watch the full video here:

From the industry leaders:

When investing in equities, always remember:

Indian macro dataflow moderated but remained strong:

  • Manufacturing PMI: Manufacturing PMI moderated to 55.3 in Feb from 55.4 in Jan but remained in expansion zone (>50 points) for the 20th straight month;

  • Services PMI: Reached a 12-year high of 59.4 in Feb (from 57.2 in Jan);

  • GST Collection: Collections of Rs. 1.49 Tn in Feb’23;

  • Credit growth: Credit growth remained elevated in Feb at 16.1% viz-a-viz 10.2% growth in deposits implying high liquidity crunch;

  • Inflation: CPI accelerated to 6.52% YoY in Jan after touching twelve month low in Dec. CPI is above RBI’s tolerance level of 6%;

  • Forex: India’s foreign exchange reserves stood at $562 billion as of March 10;

  • GDP: grew 4.4% YoY for the quarter ended Dec’22;

  • Trade Deficit: narrowed in Jan to USD 17.7 Bn as compared to USD 23.8 Bn in Dec.

     

Key indicators remains robust:

Equities:

  • Domestic equity markets fell for the third straight month as persisting concerns over higher interest rates weighed on the market;

  • FPIs sold Rs. 5,294 cr. of Indian equities in the month of Feb;

  • Mutual Funds SIP inflows remain elevated at Rs. 13,600 cr. for the month of Feb. Net investments in equity through mutual funds surged 25% to Rs. 15,685 cr. as domestic investors remain optimistic about the Indian market;

  • The Indian equities have witnessed a time correction in the last one year (Increase in corporate profits leading to fall in valuations without any major fall in prices). A few percentage fall may make equities attractive for lumpsum investments.

Fixed income:

  • RBI MPC hiked rates by 25bps to 6.5% on February 8, 2023;

  • The 10Y G-Sec traded in a band of 7.28%-7.46% and closed at 7.46% in Feb as compared to 7.34% in Jan;

  • The current curve remains very flat with everything in corporate bonds beyond 1 year up to 15 years is available @7.5-7.65% range.

Outlook:

  • We are likely to face volatile markets for the next 3-6 months as equity markets grapple with central banks focus on calibrating interest rates in the context of slowing demand scenario in 2023;

  • However, we remain constructive on equity markets from a 3 years perspective;

  • India’s growth story is a long term one and will face some volatility from time to time. We remain convinced that the best is yet to come, and advise investors to stay the course and build their portfolio in a disciplined manner.

Disclaimer: The views expressed herein constitute only the opinions/ facts and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers.

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Monthly Market update & Outlook – January’23

Importance of long-term investing:

 

In the last 42 years, the rupee has lost 97% of its purchasing power due to inflation whereas the Indian stock market index, Sensex has appreciated by astonishing 40,939% (409 times in 42 years). The only way to create wealth is to invest in assets that returns >= the rate of inflation (considering the risk profile and asset allocation).

From the industry leaders:

Indian macro dataflow moderated but remained strong:

  • Manufacturing PMI: Manufacturing PMI moderated to 55.4 from 57.8 in December but remained in expansion zone (>50 points) for the 19th straight month;

  • GST Collection: Collections of Rs. 1.55 Tn in Jan’23 is the second highest GST collection till date;

  • Credit growth: Credit growth moderated to 14.9% YoY due to higher interest rates;

  • Inflation: Dec’22 CPI inflation eased to a 11 month low of 5.88% – below the monetary policy committee (MPC) target. However, core inflation is still above 6%.

  • Trade Deficit: Trade deficit continued to remain elevated at >$25B on continued deceleration in exports and strong domestic demand of imported goods (including higher prices for crude). India’s exports to China fell from $28.1 billion to $17.48 billion in 2022. The trade deficit reached $101.02 billion in 2022, up 45% YoY.

  • Forex: India’s foreign exchange reserves rose by $3.03 billion to $576.761 billion in the week ending on January 27.

Equities:

  • Broad benchmark indices were down in the month of Jan- Nifty 50 by 2.4%, Smallcap 100 by 2.4% and Midcap 150 by 2.6%;

  • FPIs sold INR 41,464 cr. of Indian equities in the month of Jan’23;

  • Mutual Funds SIP inflows touched record high of INR 13,856 cr. for the month of Jan’23. Net investments in equity through mutual funds surged 70% to INR 12,546 cr.

  • The Indian equities have witnessed a time correction in the last one year (Increase in corporate profits leading to fall in valuations without any major fall in prices). A few percentage fall may make equities attractive for lumpsum investments.

Fixed income:

  • RBI MPC hiked rates by 25bps on February 8, 2023;

  • Similar rate hikes were done by US Feb (0.25%), Bank of England (0.5%) and European central Bank (0.5%);

  • 10 year G-Sec yield is hovering around 7.3%.

Outlook:

  • From domestic growth perspective, we believe that the RBI is closer to the peak of rate hike cycle. But the rate reversal cycle might not be immediate as it is linked to how other central banks evolve their stance;

  • While corporate earnings remaining reasonably on track for FY23, the outlook on FY24 remains a function of global growth as well as interest rates;

  • The challenge lies in the fact that some of the emerging markets, including China are trading a reasonable discount to their own long-term trends and this perhaps makes India less attractive at present to global investors, who are focussed on near-term valuations;

  • For Indian economy, the big picture clearly is the journey to getting to the third-largest economy status which could see economy nearly doubling in size and this growth is likely to permeate across sectors and market caps (large, mid, small) as companies strive for profitable growth and create wealth for investors. We believe increasing exposure to equities in a disciplined manner with the objective of staying invested for longer-term could support wealth creation for investors.

Disclaimer: The views expressed herein constitute only the opinions/ facts and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers.

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Economic survey & Union budget update – 2023

The Union Budget is one of the most awaited financial events in the country. Union Minister of Finance, Smt. Nirmala Sitharaman presented the first budget of Amrit Kaal before the parliament today. Key highlights of the same are mentioned below for your easy perusal:

Economic Survey: it is prepared by the Department of Economic Affairs (DEA) under the guidance of Chief Economic Advisor V Anantha Nageswaran.

  • GDP: India to remain the fastest-growing major economy in the world. India’s GDP growth is expected to remain robust at 7% in FY23 and thereafter 6.5% in FY24 (in real terms);

  • Domestic demand is solid. The government increased capital expenditure significantly;

  • India is the third largest economy in (purchasing power parity) terms, fifth largest in terms of exchange rate;

  • Borrowing costs may remain high for the near future;

  • Current Account Deficit may continue to widen as global commodity prices remain elevated;

  • Rupee may depreciate further if the FED hikes rates aggresively;

  • Electronics exports rise nearly threefold, from US $4.4 billion in FY19 to US $11.6 Billion in FY22;

  • The Gross Tax Revenue registered a YoY growth of 15.5 percent from April to November 2022, driven by robust growth in the direct taxes and GST;

  • Labor markets have recovered beyond pre-Covid levels, in both urban and rural areas, with unemployment rates falling from 5.8 percent in 2018-19 to 4.2 percent in 2020-21;

  • Credit to Micro, Small, and Medium Enterprises (MSMEs) has grown by an average of around 30% since January 2022 and credit to large industries has been showing double-digit growth since October 2022;

  • UPI-based transactions grew in value (121 percent) and volume (115 percent) terms, between 2019-22, paving the way for its international adoption;

  • India’s exports contracted by 12.2% to $34.48 billion in December 2022 due to the global demand slowdown. India’s export growth is likely to be flat in the next fiscal if the global economy does not pick up.

Tax and investment related provisions of the budget:

  • Individuals with an income of upto 7 lacs will not have to pay any tax under the new regime;

  • The tax slabs in the new regime have been reduced to five (from six);

  • The standard deduction for a salaried person having an income of 15.5 lac or more increased to 52,500 under the new regime;

  • The highest surcharge rate has been reduced from 37% to 25% under the new regime;

  • New Regime has been made the default tax regime but there is an option to pay taxes under the old regime as well;

  • Increase in tax exemption limit of leave encashment for non-government employees increased from 3 lacs to 25 lacs;

  • Presumptive taxation limit enhanced from 2 cr. & 50L to 3 cr. and 75L for businesses and professionals where tax receipts are not more than 5% of the total receipts;

  • The cooperative manufacturing unit will get the benefit of 15% tax rate if they commence manufacturing activities before 31.03.2024;

  • A limit of 10 cr. on deduction from capital gains on investment in residential property under sections 54 & 54F is introduced.

  • W.e.f. 1st April 2023, new insurance policies (excluding ULIPs as these are already taxable if the premium is above 2.5 lacs) with premiums above 5 lacs will be taxable;

  • A one-time new small savings scheme, Mahila Samman Savings Scheme will be available for a two-year period up to March 2025. Maximum investment of 2 lac in name of women or girls at a fixed rate of 7.5% can be made;

  • The senior citizen savings scheme limit has been increased from 15 lacs to 30 lacs;

  • The maximum limit for Monthly Income Account Scheme will be enhanced from 4.5 lacs to 9 lacs for single and from 9 lacs to 15 lacs for joint holders;

  • Relief in customs duty on import of certain mobile parts like camera lens and concessional duty on Lithium ion cells for batteries extended for another year;

Other key relevant highlights of the budget:

  • PM Garib Kalyan Anna Yojana is launched w.e.f. 1/1/2023 to supply free food grains to all antyodaya and priority households;

  • The agricultural credit target has been increased to 20L cr.

  • The outlay for PM Awas Yojana is being enhanced by 66% to over 79,000 cr.

  • A 10L cr. capex target for 2023-24 which is 33% higher than the budget estimate of 7.5L cr.

  • A capital outlay of 2.4L crore has been provided for the railways;

  • Three centers of excellence for Artificial Intelligence will be set up in top educational institutions;

  • 48% rise in allocation towards renewable energy sector;

  • PM Kaushal Vikas Yojana 4.0 will be launched to skill lakhs of youth within the next three years;

  • MSMEs will be provided a credit guarantee of 2L crore and a reduction in the cost of borrowing by 1%;

  • To enhance investors’ protection, the Banking Regulation Act, the Banking Companies Act and RBI Act are proposed;

  • Fully imported cars, including EVs to cost more;

  • Ministry of electronics and IT has received 16K cr. of allocation – double than what it was two years back;

  • An integrated IT portal will be set up to reclaim unclaimed shares and unclaimed dividends from the investor education and protection fund;

Our take on the budget:

 

The focus of the budget was primarily on seven sectors, including domestic manufacturing, infrastructure development, and green power. From agriculture to the digital economy, the Government is trying to lay a strong foundation in all the sectors for India’s multi-year growth. We are confident of India’s growth story and it becoming a $ 5 trillion economy by 2030 and $ 25 trillion by 2047.

 

However, India is one of the countries where the savings ratio is very low. Instead of promoting the habit of savings, the Government is trying to shift to the new regime wherein there are no major deductions available and at the same time, taxing underpenetrated investment products like equities, mutual funds, insurance etc.

 

One of the most neglected sectors, tourism, found its mention in the budget today. Setting up of 50 new airports and heliports is a welcome move. Overall the budget was growth-oriented, inclusive, and prudent.

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Monthly market update & outlook – December’22

“Unless you buy a stock at the exact bottom (which is next to impossible), you will be down at some point after you make every investment. Your success entirely depends on how dispassionate you are towards short term stock price fluctuations.” -Joel Greenblatt

In the last one year we have observed that many new investors suffer from financial anxiety because they indulge in the futility of trying to predict the market. Timing the market & consistently doing it is near impossible task (unless there is a black swan event like COVID, War, etc. where there is an intense selling by a few big players). This financial anxiety results in Invetment return > Investor’s return.

From the experts:

Indian macro dataflow remained strong:

  • Manufacturing PMI: Manufacturing PMI rises to highest in over two years, reaching 57.8, and remained in expansion zone (>50 points) for the 18th straight month;

  • GST Collection: Collections of INR 1.49 Tn (+15% YoY) in Dec’22 concluded the tenth consecutive month of collections over 1.4Tn mark. Increased revenue from imports and domestic transactions have led to the sustained levels;

  • Credit growth: Credit growth accelerated to 17.4% YoY as of 16th Dec 2022 against YoY growth of 6.21% as observed on 16th Dec 2021;

  • Inflation: Dec’22 CPI inflation eased to a 11 month low of 5.88% – below the monetary policy committee (MPC) target;

  • Trade Deficit: Trade deficit continued to remain elevated at >$25B on continued deceleration in exports and strong domestic demand of imported goods;

  • Forex: India’s forex reserves increased to $563B – enough to sustain nine months of imports;

 
Equities:
 

  • Indian equities snapped a two month gain in Dec-22, with Sensex & Nifty declining 4% each;

  • FPIs bought $1B of Indian equities in the month of December

 
Fixed income:
 

  • RBI MPC hiked rates by 35bps;

  • RBI hiked interest rates on small savings schemes (Term deposits, NSC, Senior Citizen Savings Scheme) by 110bps.

 

Outlook:

 

As we enter 2023, we see an environment where both inflation and growth might be slowing. Both from cyclical and structural perspective, India seems to be better placed vs rest of the World. Domestic demand continues to be strong. Policy reforms, huge under investments in Capex, stronger corporate Balance Sheets have potentially created a robust platform for a virtuous cycle of growth.

 

While India is likely to be amongst the fastest growing economies, the near-term global uncertainties are unlikely to wither away soon and the volatility can be potentially higher in the short run.

 

Disclaimer: The views expressed herein constitute only the opinions/ facts and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers.

Onesta Capital Ventures is a Multi Family Office based out of Gurugram (India). We aim to provide tailored independent wealth management and other family governance solutions to individuals and corporates.

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