“Courage taught me no matter how bad a crisis
gets … any sound investment will eventually pay off.” —
Carlos Slim Helu (Mexican business magnate, investor, and philanthropist)
Markets continued its January Jinx and ended lower
for 2nd consecutive month in a row. The Nifty ended 2.4% lower, while Sensex
fell 2.12%. All major sectors close lower in Jan’23. India’s outperformance in
CY22 has faded in Jan’23. Barring India (down 2% MoM) and Indonesia (flat MoM),
Jan’23 saw key global markets such as Korea (+8%), Taiwan (+8%), MSCI EM (+8%),
the US (+6%), China (+5%), Japan (+5%), the UK (+4%), Russia (+4%), and Brazil
(+3%) close higher in local currency terms.
Key Reasons, for this under performance:
- Higher Valuations compared to peers in
Emerging Markets – India was trading at 22 PE
compared to 11.5 PE for Emerging markets. India hugely benefited from crisis in
these countries (China Lock down and Russia-Ukraine War). Now since things are
settling there, FIIs are realigning their portfolios and booking profits in
India. - China opening-up after strict lockdown –
During the past year, India had seen strong FPI outflows at the beginning of
the year but as Russia-Ukraine conflict grew and China cracked down on its tech
companies, the investors shunned these markets. India benefitted at the margin.
Now, as China opens-up and its markets perform better, investors are realigning
their portfolios and in the middle of another commodity up-move, India is
seeing some FPI outflows. - Pre-Budget Selling – Traditionally
markets go lighter before Budget. There were many rumours of hike in capital
gain loss tenure, Govt opting for a populist budget before 2024 elections.
Hence profit booking was done before that.
Key Events, that has set the tone for February:
- Union Budget 2023-24: Furthering
the efforts to boost the economic resilience considering the global growth
moderation, the Union Budget 2023-24 attempts calibrated steps in the right
direction. Focus on boost to infrastructure and capital spending along with
fiscal prudence is a big positive. The budget rightly avoids populist measures
in the pre-election year and prioritizes long term growth. - Major Announcements – Tax & Financial
Sector:- Rebate
limit of INR 5 lakh is proposed to be revised to INR 7 lakh.
- The
number of tax slabs have been reduced to 5 from 6. NIL tax rate is proposed for
income up to INR 3 lakh vs INR 2.5 lakh.
- Income
from non ULIP life insurance policies having premium above INR 5 lakh per annum
is proposed to be taxed, applicable for new policies after 1 April 2023.
- Maximum
deposit limit for Senior Citizen Savings Scheme to be enhanced from INR 15 lakh
to INR 30 lakh.
- Rebate
Overall Verdict– Positive
for Markets 👍
- RBI Policy Meet: RBI in its Feb
policy meet increased the repo rate by 25 bps to 6.5% from 6.25%. Sixth hike in
a row, despite inflation cooling off. Surprisingly RBI was hawkish and remain
focused on “withdrawal of accommodation” stance while supporting growth. RBI is
expecting inflation to remain above the 4% target. RBI projects retail
Inflation lower from 6.7% to 6.5% in FY23. Retail inflation projected at 5.3%
for the next fiscal. - FY23 Real GDP growth projection increased to 7%
from 6.8% & 6.4% in FY24.
Overall Verdict– Positive
for Markets 👍 – Max another
25-bps hike in next policy meet and a pause after that.
- Adani stocks meltdown: US based
short seller Hindenburg Research, released its research report on Adani just a
day before the company’s FPO was about to go live raising 20K Cr from the
market. - Hindenburg Research allege that Gautam Adani,
founder and chairman of the group, has added over $100 billion to his net worth
over the last three years, largely through stock price appreciation in the
group’s seven key listed companies, which have spiked about 819% in the same
period. - The impact of this report led to heavy selling
in Adani group stocks. Company somehow managed to subscribe its FPO but cancelled
it a day later as it felt going ahead with the issue will be morally incorrect
and not beneficial for investors. - The Adani group stocks (including Ambuja, ACC
and NDTV) have lost around Rs 9.5 lakh crores or about 49 per cent of their
combined market cap in the last nine
trading sessions (from January 24 to February 6 2023). - Though it was a well-known news that Adani
Stocks were overpriced, that’s the reason Mutual Funds stayed away from this
group and did not have much exposure to the group apart from Index funds as
Adani is part of Index, hence compulsory inclusion. - Adani group companies have little analyst
coverage. Analyst reports play an important role in helping investors make
informed decisions and a low or nil coverage reflects poorly on the quality of
the company. It is often looked upon as a sign of lack of genuine investor
interest, which makes brokerages and analysts give the company a miss in terms
of tracking it. - In conclusion, the Hindenburg report on Adani
Group raises serious concerns about the company’s financial and operational
practices, as well as its environmental impact. While Adani Group has strongly
denied the allegations, it is important for investors and regulators to take
these concerns seriously and to undertake a thorough investigation of the
claims made in the report. The report’s release is a reminder of the need for
increased transparency and accountability in the business world and the
importance of ensuring that companies operate ethically and sustainably.
Overall Verdict– Negative
for Markets 👎 We recommend not
to take any exposure in these stocks and wait till the dust settles down. One
can witness huge volatility in these stocks in next one month period, but there
are enough good stocks available with low valuations and clean corporate
governance, which one can always bet on.
Overall Impact of above 3 events:
- Last few months FIIs were net sellers but market
was ably supported by local DII funds, which helped markets-maintained level,
even when global peers were falling. - It’s now 1.5 years of market under performance
and budget was seen as a positive catalyst which would have turned the next leg
of growth in markets. Though the budget delivered on its expectations, but it
was nullified by Adani news, denting the confidence of even domestic investors. - Hence, we expect markets to remain sideways for
few months and one can start a move only after next quarter’s results
announcement. - Since markets touched fair valuations post this
fall, shifting from Debt to Equity is recommended. There are no further major
events this month, hence we are expecting markets to remain sideways. - One can allocate 100% in Equity segment this
month on the Asset Allocation Modelling.
Happy
Investing!
