Sunday, April 02, 2023

Welcome to The Weekly, where our team shares a few thoughts to take you into the week. This week’s thoughts have been brought to you by Sagar Lele, Founder of Rupeeting. He also manages the All-Weather portfolios.

Markets Breaking the Losing Streak – Signs of Hope?

The markets have fallen 4% in the first three months of 2023, making the year pretty dark so far; and darker if you compare it to the 20% rally in the US markets so far. However, last week, the markets snapped the losing streak and rose by nearly 2%.

What’s getting the markets positive?

1. RBI policy meeting - It’s pretty much a consensus view now that the RBI will hike rates by 25 bps. We too feel there is need and room for the RBI to act on curbing inflation, which is still a tad bit above comfort levels, while also not being in a situation as tight as the US or Europe, where banks are failing. However, the positivity is coming from expectations of RBI pausing on hikes after that, and withdrawing its accommodative stance, and shifting to a neutral stance.
2. Improving macros - The March edition of the RBI bulletin suggested that the current estimates of India’s growth for FY24 of 6-6.5% may be exceeded. It also states that India’s growth expectations are likely to maintain the pace of expansion, and not slow down. Key manufacturing and services PMI numbers are up for release during the week, which are likely to throw more light on economic activity.
3. Global positivity - Data from the US last week suggested a fall in core personal consumption, which is being extrapolated to lower inflation. In China, PMI data hit the highest level since before the pandemic. Global stocks have been rallying, and adding to the overall positive sentiment since.

Will the positivity last? In the short run, yes! However, we don’t see the markets taking a systematic turn in direction.

Globally, the disconnect between markets and underlying economic conditions is increasingly becoming a larger worry. The Indian markets in that backdrop, with inflation still not below comfort, growth still at risk of falling, and valuations still not below long term averages, stand more to lose than to gain.

Idea - Sula 🍷

Gradually taking over the palettes of the Indian consumer, wine is a small yet growing segment in the alcoholic beverage industry of India - and the vines point towards Sula as the player to back on our exchange.

A new IPO in a nascent market, Sula has given a 17% return since its listing in December 2022 while Nifty has given a -4%!

While those who didn’t invest in the stock sit and count sour grapes, why don’t we take a look into the barell of the wine industry in India and whether Sula is the one to place your bet on?

1. Sweet-Smelling Future

Although the country produces 40 million cases (12 bottles in each case) of wine annually, the average Indian only drinks one bottle per year, compared to two in China and 50 in Italy or the United States.

In fact, wine currently accounts for less than 1% of total alcohol consumption in India (global average is 13%), giving significant headroom for the industry to grow.